Gold Ends Higher On China Rate Cut

November 21, 2014

Washington  (Nov 21)  Gold futures snapped a two-day loss to end higher on Friday, after  China's  central bank unexpectedly slashed its key interest rates for the first time in more than two years in a bid to boost sagging growth momentum.

Nevertheless, a strong dollar and rising global equity markets amid expectations of additional stimulus from the  European Central Bank  capped gains, keeping the precious metal below the  USD1,200  mark. The S&P 500 and the Dow Jones Industrial Average made solid gains after  China's  interest rate cut and on remarks from  European Central Bank  President  Mario Draghi  on additional stimulus to contain deflation.

The People's Bank of  China  today cut its key lending rate by 0.4% to 5.6%, to spur economic growth. The deposit rate has been reduced by 0.25% to 2.75%. The surprise rate cut, which was the first reduction since  July 2012  , comes as the world's second largest economy is forecast to log its weakest growth in nearly 25 years.

Gold for December delivery, the most actively traded contract, gained  USD6.80  or 0.6% to settle at  USD1,197.70  an ounce on the Comex division of the  New York Mercantile Exchange  on Friday.

Gold for December delivery scaled an intraday high of  USD1,207.60  and a low of  USD1,186.10  an ounce.

On Thursday, gold futures ended lower at  USD1,190.90  an ounce, down  USD3.00  or 0.3%, after a slew of mostly encouraging economic data from the US, including weekly jobless claims and a report on consumer price inflation.

Holdings of  SPDR Gold Trust  , the world's largest gold-backed exchange-traded fund, remained unchanged at 720.91 tons on Friday from its previous close of 723.01 tons.

The dollar index, which tracks the US unit against six major currencies, traded at 88.35 on Friday, up from its previous close of 87.70 late Thursday in North American trade. The dollar scaled a high of 88.39 intraday and a low of 87.45.

The euro trended lower against the dollar at  USD1.2382  on Friday, as compared to its previous close of  USD1.2539  late Thursday in North American trade. The euro scaled a high of  USD1.2568  intraday and a low of  USD1.2376  .

In a significant move, the People's Bank of  China  cut its key one-year lending rate by 40 basis points to 5.6% and the one-year deposit rate was lowered by 25 basis points to 2.75%.

Meanwhile, hopes of additional stimulus from the  European Central Bank  have increased after the bank's President  Mario Draghi  said the ECB will expand its asset purchase program if inflation fails to show signs of returning to the targeted level.

Eurozone consumer confidence declined in November, defying expectations for an increase, preliminary data from the  European Commission  showed Friday. The flash consumer confidence indicator decreased to -11.6 from a -11.1 in October. Economists had forecast the index to rise to -10.7. For the EU, the consumer confidence index slid by 0.8 points to -8.2.

The leading index for  Germany  remained flat in September, data from the Conference Board showed Friday. The leading index was unchanged month-over-month in September after the 1.3% decline in August. The coincident index, a measure of current economic conditions, also remained flat in September following the 0.3% drop in the previous month.

Source:  Alliance

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