GOLD PRICES jumped Friday lunchtime in London, rising 0.7% in 15 minutes after the People’s Bank of China cut its key interest rate for the 5th time in a year.
With 1-year deposits now set to pay just 1.5% from tomorrow – below September’s official pace of inflation – Beijing also cut the reserve requirements for commercial banks, enabling them to lend out more of the money they take in from savers.
New data earlier showed China’s average home price rising for a fifth month running in September, led by the big Tier 1 cities.
Asian stock markets had already followed the US sharply higher, adding almost 2% after Thursday’s strong hint from European Central Bank chief Draghi that more Eurozone monetary stimulus – whether through additional QE or lower rates – will arrive in December.
The Paris and Frankfurt stockmarkets led a further charge higher in Euro equities after Friday’s PBoC rate cut, heading for 4.8% and 6.9% week-on-week gains respectively.
Flash estimates today showed Eurozone business activity rising sharply in October, with manufacturing growth firm on Markit’s PMI survey, and the 19-nation currency union’s services sector expanding near this summer’s 4-year record.
“The Euro [currency] plunged on this [ECB] news against the US Dollar,” notes German bank Commerzbank, “but surprisingly gold has held the current lows [and] support at $1165-1167 very well throughout.
Speaking to Bloomberg News, “Gold in Euro terms is looking very interesting,” adds Commerzbank analyst Eugen Weinberg in Frankfurt.
Euro gold prices leapt Friday above €1066 per ounce, some 2.7% up for the week at fresh 3.5-month highs.
Sterling gold prices also rose sharply, breaking above £765 for the first time since June. But priced in the Dollar, gold only recovered the week’s earlier 1.2% drop to trade back at last Friday’s close near $1177.
Silver also rose with gold prices, but again only to match last Friday’s 4-month closing high above $16 per ounce.
“Gold found interest in China overnight,” says Swiss refining and finance group MKS’s trading desk, but “the key for the yellow metal will be a break of the 200-day moving average that will open up the recent high at $1192.
“Weighing upon a move higher is next week’s large [bearish options contracts] strikes sitting at $1150.”
Next week also brings the October interest-rates decision from the US Federal Reserve – expected to leave the cost of borrowing unchanged below 0.25% for the 83rd month running.
New data yesterday said US home prices rose 0.3% in August, with sales of existing properties last month jumping at the 5th fastest annualized pace since Fed interest rates hit zero in the depths of the 2008 post-Lehman Brothers’ crisis.
“Coming on the heels of a dovish Draghi yesterday,” says ICBC Standard Bank precious metals strategist Tom Kendall, “[the PBoC move] has lit a small fire under risk assets.
“But note that the last four PBoC interest rate cuts have been followed by significant corrections in the gold price.
“The anti-consensus trade here,” Kendall goes on, “would be to sell this rally in gold. [Because] there is no clear link between demand for gold in China and Chinese real interest rates.”
Ahead of the PBoC rate cut news, Shanghai gold prices ended Friday higher, regaining a solid premium to the global benchmark of London bullion quotes of more than $2 per ounce.
