Gold gains as China cuts reserve ratio

February 4, 2015 02:35 PM

Gold rose for the first time in three days as China took steps to shore up economic growth amid signs of a deepening slowdown, boosting demand for the metal as a store of value.

China reduced the amount of cash lenders must set aside as reserves in a bid to increase liquidity, after capital outflows and weaker manufacturing. Bullion pared earlier gains of as much as 1% after a report showed U.S. service industries expanded at a faster pace last month.

Gold in January capped the biggest monthly gain in three years as concern mounted that Greece would exit the euro area and officials in Europe and Asia announced stimulus to bolster stagnating economies. Physical demand is also helping the metal, with imports by India, the world’s second-biggest user, jumping in the 10 months through January.

“Gold looks attractive, as all central banks race to increase liquidity,” Bill O’Neill, partner at Logic Advisors in Upper Saddle River, New Jersey, said in a telephone interview. The price “has probably found its bottom for now,” he said.

Gold futures for April delivery rose 0.2% to $1,263.10 an ounce at 10:43 a.m. on the Comex in New York. Prices fell 1.5% in the previous two sessions on concern that U.S. interest rates will increase soon.

Last year, gold posted a consecutive annual decline for the first time since 1998 as the U.S. economy gained traction and equities surged to a record.

Aggregate Trading

Aggregate trading was 16% below the 100-day average, according to data compiled by Bloomberg.

A measure of price swings in gold over 100 days was near 17.5, the highest since March, according to data compiled by Bloomberg.

China’s reserve ratio will fall 50 basis points on Thursday, the People’s Bank of China said on its website.

Volumes for the Shanghai Gold Exchange’s benchmark spot contract climbed to a the highest in almost seven weeks before a week-long break starting later this month.

Shipments to India jumped to about 940 metric tons from April through January, said two government officials with direct knowledge of the matter, asking not to be identified as the provisional data isn’t public.

Silver futures for March delivery rose 0.5% to $17.41 an ounce on the Comex in New York. Prices jumped 10% in January, the most since June.

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