Gold Up Following China Cut, Eye on Rates Posted by James Randolph on July 05, 2012
July 5, 2012 – Gold approached two-week highs Thursday following an unexpected rate cut from China, though market participants were cautious instead of pushing prices as the European Central Bank was set to cut rates later in the day and the important U.S. jobs report is due out Friday.
The central bank in China slashed interest rates for the second time in as many months Thursday, in the latest attempt to stimulate growth in the second-largest economy in the world.
The interest rates on loans, particularly benchmark rates, will be lessened by 31 basis points to 6 percent, with deposit rates reduced by 25 basis points to 3 percent, according to a statement from the People’s Bank of China posted on its website.
The spot price of gold was up 0.4 percent to $1,620.99 per troy ounce, an extension of gains made ahead of the European Central Bank meeting, which is widely expected to bring an announcement of rate cuts to record lows as a measure to fight the sovereign debt crisis.
Gold has gained more than 1 percent for the week and is currently on track for its first successive two-week gain since late February.
“Overall, rate cuts by China, the ECB, and the US are all positive for gold, on a slightly longer view than just one day for the simple reason that with inflation where it is, you started cutting interest rates of course then real interest rates get lower. So we see it as a bullish development for gold, and most of the other precious metals should benefit from that,” Walter de Wet, an analyst with Standard Bank, said.
Low real interest rates, which combat the effects of inflation, make gold a sought-after investment because it does not seek a yield or dividend which would be eroded by that the effects of monetary policy. Investors who own gold look for increases in its market value for a strong investment.
Friday’s US job’s report is expected to reflect some of the difficulties occurring now in the Eurozone and may give the Federal Reserve reason to take more action to stimulate economic growth.