Gold prices dipped 1% on Monday after hitting a near four-week high, as China's central bank cut reverse repo rates and injected liquidity into markets to help support an economy hit by a coronavirus outbreak. Chinese authorities pledged to use various monetary policy tools to ensure liquidity remains reasonably ample amid the virus outbreak in Wuhan, which has so far claimed 361 lives.
Spot gold fell as much as 1% before trading 0.8% lower at $1,577.38 per ounce by 0819 GMT. Earlier in the day, it touched its highest since January 8 at $1,591.46. US gold futures shed 0.4% to $1,581.70. "The fact that the People's Bank of China (PBOC) is backstopping (the impact from the virus) is driving gold lower," said Stephen Innes, chief market strategist at AxiCorp.
"... But there'll be a considerable knock-on effect over the longer term, given the fact that 50% of China is shut this week and there will be a drop in production and consumption." Investors took stock of PBOC's measures, which included lowering of the 7 and 14 day reverse repo rate to 2.40% and 2.55% respectively, and an injection of 1.2 trillion yuan ($174 billion) worth of liquidity into the markets.
However, AxiCorp's Innes said "once we get through this 'band-aid effect', the reality will set in that there is an economic tumult about to happen in China, which is going to spread globally and force a lot of central banks to cut rates."
Spot gold may seek a support at $1,573 per ounce, and then resume its uptrend, said Reuters technical analyst Wang Tao. Speculators cut their bullish positions in COMEX gold contracts in the week to January 28, data showed on Friday.
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