Gold Price Rallies on Surprise China Interest Rate Cut
Beijing-China (Oct 23) A surprise move by China to lower its key interest rates has given the gold market a moderate boost Friday morning-just when the bulls needed a lift. However, U.S. and European stock markets also rallied on the China news, which did limit gains in the safe-haven gold market. December Comex gold was last up $11.20 at $1,177.20 an ounce. December Comex silver was last up $0.208 at $16.045 an ounce.
China’s central bank lowered its lending and deposit rates by 0.25%. The one-year lending rate is now 4.25% and the deposit rate is 1.5%. China’s government meets next week to discuss its five-year economic growth plan.
Before the China news, the marketplace was still reacting to a very dovish press conference delivered by European Central Bank President Mario Draghi, following the regular monetary policy meeting of the ECB Thursday. While the ECB left its interest rates and monetary policy unchanged at Thursday’s meeting, Draghi strongly hinted the ECB could announce further monetary policy stimulus measures in December, in order to boost Euro zone economic growth and ward off price deflationary pressures. Draghi’s comments hammered the Euro currency, helped to rally the greenback strongly and boost the U.S. and European stock markets. Asian stock markets rallied Friday, following the Thursday Draghi news that occurred after the Asian markets had closed.
With the China rate cut Friday morning and the ECB news Thursday, it becomes even harder for the U.S. Federal Reserve to “go against the grain” and raise its interest rates any time soon.
Another report Friday fell into the camp of the Euro zone monetary policy doves. A group of EU forecasters lowered their already low inflation outlook for this year and the next two years. Inflation in the Euro zone in 2015 is forecast at 0.1%, for 2016 at 1.0% and in 2017 at 1.5%. These numbers are well below the ECB’s target rate of 2.0% annual inflation.
The Markit Euro zone purchasing managers index (PMI) for October came in at 54.0 versus expectations of a reading of 53.3 and a number of 53.6 in September. The report helped to stabilize the Euro currency after Thursday’s beat-down of the common currency.
Traders and investors are looking ahead to next week, which will feature the FOMC monetary policy meeting and the big Chinese government five-year planning meeting.
U.S. economic data out Friday includes the U.S. flash manufacturing purchasing managers’ index.