Gold hits six-week high on concerns over slowing growth

[LONDON] Gold hit a six-week high on Tuesday on concerns over a global economic slowdown after China's growth eased in the third quarter and as European Central Bank (ECB) insiders flagged new measures to support growth.

Sources at the ECB told Reuters that the bank was readying a plan to buy corporate bonds as part of its battle against a slowing economy. The news boosted shares, pressured bond yields and sent the euro lower.

Data earlier in the day showed that China's gross domestic product (GDP) grew 7.3 per cent between July and September from a year earlier, down from 7.5 per cent in the second quarter but slightly above the 7.2 per cent forecast by analysts.

Spot gold hit its highest since Sept 10 at US$1,255.20 an ounce in earlier trade, also helped by a softer dollar. It was up 0.5 per cent at US$1,252.70 by 1342 GMT, while US gold futures were up US$8.50 an ounce at US$1,253.20.

"Sentiment is good," ABN Amro analyst Georgette Boele said."It looks as though in the short term there is a bit of momentum that people are playing.

"We still think we'll get another test of US$1,200, but for that you would need the dollar to rally and interest rate expectations to be adjusted upwards again, which at the moment is not happening." The dollar rebounded slightly versus a basket of leading currencies but remained under pressure from a dip in US government bond yields.

The US currency has lost ground in recent weeks as concerns about slowing global growth prompted investors to trim bets that the US Federal Reserve will raise interest rates soon after an expected end to its monetary stimulus this month.

A delay in raising rates would be seen as positive for gold, a non-interest-bearing asset, and negative for the dollar.

Obstacle Removed

"The retreat of the US dollar from multi-year highs removed the main obstacle for gold," Commerzbank analyst Carsten Fritsch said. "Weak economic data in the euro zone and China led to concerns that the US economy will not be immune against a slowdown in economic growth, causing turmoil in wider markets over the past few days." European shares rose on Tuesday, trimming the previous day's losses.

With the Chinese data now out, the market's focus will turn to Wednesday's US inflation figures and Thursday's European manufacturing reports, traders said.

Gold was also bolstered by buying interest in the physical markets from Asia - the top-consuming region.

India, the second-biggest gold buyer, celebrates the festivals of Dhanteras on Tuesday and Diwali later in the week. Both are considered auspicious for buying gold, which could provide a boost to retail sales and imports.

News that India's central bank will not tighten gold import rules further could also lend some support.

Overall sentiment towards gold remained wary, however. Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 1.18 per cent to 751.97 tonnes on Monday - the biggest daily percentage drop in a year.

Among other precious metals, spot silver was up 0.8 percent at US$17.53 an ounce. Platinum gained 1.7 per cent to US$1,279.74 an ounce, while palladium rose 1.7 per cent to US$773 an ounce.

REUTERS