Gold Prices Gain amid Expectations of Monetary Easing from China

Gold prices ended higher on Friday, settling at $1,592 an ounce as hopes of another round of monetary easing from China gathered pace after the country’s second-quarter GDP growth slowed down. China’s second-quarter GDP grew at the slowest pace in more than three years.

A rally in global equities, oil and grains also lifted bullion’s prices on Friday. Gold, although concerned as safe haven asset, has rather moved in tandem with other riskier assets this year.

Spot gold settled up 1.2 percent at $1,589 an ounce, while U.S. gold futures climbed up $26.70 an ounce on Friday to settle at $1,592.00.

Earlier on Friday, gold received some boost when a report from China showed that economy in the second quarter grew by 7.6% down from 8.1% in the first quarter. In the recent past, whenever China’s economic growth has shown some downturn, China’s central bank promptly provided some economy stimulating measures.

Later during the day, U.S. economic indicators also lifted expectations that the Federal Reserve, at least in the third quarter might ponder over fresh round of quantitative easing. While a data provided by Thomson Reuters and University of Michigan showed that consumer sentiment reading was at its lowest since December, the producer price index rose only marginally in June.

This year, gold prices have been very sensitive to central banks’ policy responses. In February, gold rallied, gaining 15% following Federal Reserve’s statement that it intends to keep the benchmark interest rates at near zero levels until 2014. But as fed adopted less dovish approach since March amid series of stronger economic indicators, gold pared all its earlier gains. So far this year, gold is up 1.5%.

Physical Gold Market Retreat After Some Buying

The physical market side remained muted on Friday, as traders in India, world’s biggest consumer of gold stayed on sidelines after metal prices recovered following China’s GDP data announcement. Import demand from India has been very week this year.  Orders from India dried up in March as the federal government suddenly raised import duties and excise duties on gold (these were latter slashed); then the Indian rupee started to sharply fall against the U.S. dollar amid deteriorating Indian economy and worsening trade balance, making imports more expensive and hurting the demand for gold.

In its research notes, UBS bank wrote,   “Unless physical players and/or opportune investors step in significantly at these levels, we see little standing in the way of further gold weakness in the near-term,” “In the absence of fresh catalysts, market participants have focused on technicals, and from this perspective, gold looks vulnerable to the downside,” the note added.

A data provided by Reuters shows that holdings of gold-backed exchange-traded funds- those securities which are backed with physical stocks of bullion- fell for the third session on Thursday to 70.4 million ounces down 70.9 ounces in March.

Furthermore, the largest gold-backed ETF, New York’s SPDR Gold Trust (NYSE: GLD), witnessed an outflow of almost 10 tons so far in July.

Moving onto some other precious metal markets’ news, silver settled 0.55% higher, at $27 an ounce.

The gold/silver ratio—a gauge on number of silver ounces required to buy an ounce of gold—fell further after reaching to a two years high during last month as gold was outperformed by silver on Thursday, bucking the recent trend.

According to UBS, investors’ interest in silver was mainly driven by latest offering from the Spot Silver Trust.

Spot platinum also gained 1 percent, to close at $1,425 an ounce, while spot palladium settled higher 1.2 percent at $580 an ounce.

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Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.