Chinese rate cut pushes gold, silver to highs

November 21, 2014 09:54 AM

Gold and silver futures rose to three-week highs after China cut benchmark interest rates to support economic growth, boosting demand for precious metals as a store of value. Palladium jumped the most in 14 months.

The rate reduction was the first since July 2012 as the Asian nation heads toward its slowest full-year expansion in almost a quarter century. Russia added to gold reserves in October, bringing holdings to the highest in at least two decades, International Monetary Fund data showed.

The metal has climbed 6% after touching a four-year low on Nov. 7 amid increased demand for coins and jewelry, combined with signs that nations are boosting reserves. Central banks may raise purchases by as much as 22% in 2014, the World Gold Council estimates.

“People will buy gold as a hedge, since it is clear that China wants to stimulate growth,” Miguel Perez-Santalla, a sales and marketing manager at Heraeus Metals New York LLC, said in a telephone interview. “Also, we are seeing a rise in physical demand.”

Gold futures for December delivery climbed 0.6% to settle at $1,197.70 an ounce at 1:36 p.m. on the Comex in New York. Earlier, the price reached $1,207.60, the highest for a most-active contract since Oct. 30. The metal rose 1% this week.

Open Interest
Aggregate trading was 56% above the 100-day average for this time of day, data compiled by Bloomberg show. Open interest at an estimated 468,051 contracts was the highest in two years.

China’s one-year deposit rate was lowered by 0.25 percentage point to 2.75%, while the one-year lending rate was reduced by 0.4 percentage point to 5.6%, effective tomorrow.

“An accommodative policy is generally friendly to gold,” Joni Teves, a precious-metals analyst at UBS AG in London, said in a telephone interview. “China’s gross domestic product in recent years has coincided with growth in demand for gold.”

Switzerland was a net exporter of gold in October for the first time this year, data showed yesterday.

Gold climbed 70% from December 2008 to June 2011 as the Federal Reserve bought debt and held U.S. borrowing costs near zero percent in a bid to shore up economic growth. Buying accelerated after the financial crisis spurred global central banks to increase money supplies.

Japan Stimulus
The rate reduction puts China on the side of the European Central Bank and Bank of Japan in deploying fresh stimulus and contrasts with the Fed, which stopped quantitative easing.

In 2014, gold has dropped 0.4%. The metal in 2013 tumbled 28%, ending a 12-year bull run. A second straight annual drop would mark the longest slump since 1998.

Yesterday, global holdings in exchange-traded products backed by gold fell 2.1 tons to 1,614.7 tons, extending a slump to the lowest in more than five years, according to Bloomberg data.

Silver futures for March delivery gained 1.6% to $16.459 an ounce. Earlier, the price reached $16.66, the highest since Oct. 30.

On the New York Mercantile Exchange, palladium futures for December delivery jumped 3.6% to $794.90 an ounce, the biggest gain since Sept. 19, 2013.

Silver and palladium trading doubled compared with the 100- day average.

Platinum futures for January delivery rose 1.8% to $1,227.30 an ounce, the largest advance since Oct. 6.

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