Gold rose above $1,200 per ounce on Friday, hitting the highest level in three weeks after China’s surprise rate cut fueled expectations that demand could rise in the largest consumer of gold in the world.
The People’s Bank of China cut the benchmark one-year loan rate 0.4% to 5.6%, the first cut since Jul. 2012, in a move that surprised world market.
Mitsubishi analyst, Jonathan Butler was quoted by Reuters as having said, “Any measures that accelerate the spending power of the Chinese public are bound to be positive for gold. This could mean additional spending power for Chinese consumers to buy jewellery and investment products.”
Spot gold rose 0.9% to $1,203.84 per ounce while December delivery US gold futures climbed $12.80 per ounce to $1,203.70. Spot gold had earlier on reached $1,207.70, the highest level in three weeks.
The Wall Street Journal quoted Bob Haberkorn, senior commodities broker at RJO Futures as having said, “A cut in interest rates is always bullish for precious metals.”
A sharp decline in the euro against the dollar had pressured gold earlier to a $1,186.84 per ounce session low, after Mario Draghi, European Central Bank chief said that inflation expectations were dropping to low levels.
Priced in dollars, gold tends to drop when the dollar gains strength.
Afshin Nabavi, MKS head of trading said, “Overall the dollar continues to be leading the way. Therefore I have to say that, despite the demand for physical, because of the weakness in the euro, we have a chance of testing the lows again.”
Traders were also looking at news of the central bank’s purchases and sales. Ukraine reduced its gold reserves in October by more than a third while Russia increased its gold holdings for the seventh straight month.
Silver climbed 1.5% to %16.45 per ounce and spot platinum rose 1.5% to $1,227.50 per ounce. Spot palladium rose 2.3% to $785.98 per ounce.
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