Gold firms as China comments lift financial markets

Reuters

By Jan Harvey

LONDON (Reuters) - Gold rose on Tuesday as comments from China calmed concerns about a credit crunch there, taking pressure off commodities and equities, though the prospect of an end to U.S. monetary stimulus kept bullion near three-year lows.

The metal was caught up in earlier selling on the wider financial markets as Chinese shares fell deeper into bear market territory on fears of a cash crunch, dragging down other stock markets, oil and metals.

Commodities recovered in Europe and shares rose more than 1 percent after China's central bank said it would guide rates to reasonable levels.

Gold remains on track for its biggest quarterly loss in more than 30 years after the U.S. Federal Reserve gave the clearest signal yet that it plans to taper its $85 billion monthly bond-buying programme.

Spot gold was up 0.3 percent at $1,285.10 an ounce at 1139 GMT, off an earlier low of $1,273.46, though it continued to underperform other precious metals, oil and copper.

"Bullion showed little reaction to firmer equities and other commodities, including platinum group metals and silver, after the People's Bank of China tried to once more calm the market on liquidity concerns," VTB Capital analyst Andrey Kryuchenkov said.

"We are sitting tight, consolidating ahead of U.S. data in very thin trading. People will give extra weight to any U.S. macro or QE3-related (quantitative easing) comments."

The Fed's quantitative easing measures, put in place to stimulate growth, have helped to drive gold to record highs in recent years by keeping interest rates low while stoking inflation fears. Reducing those measures is likely to hurt gold.

Investor appetite for bullion has faded, with the world's largest gold-backed exchange-traded fund - New York's SPDR Gold Trust - reporting another 4.2 tonne outflow on Monday.

BANKS CUT FORECASTS

Several banks, including Goldman Sachs (GS.N), Morgan Stanley (MS.N), Credit Suisse (CSGN.VX), Deutsche Bank (DBKGn.DE) and HSBC (HSBA.L) have cut their gold forecasts this week after its slide.

Credit Suisse cut its gold price forecast for 2013 to $1,400 an ounce from $1,580 an ounce, while HSBC cut its price view to $1,396 an ounce from $1,542 and Morgan Stanley reduced its forecast to $1,313 from $1,409.

"With investor demand for safe-haven assets waning against the backdrop of a strengthening U.S. dollar and rising U.S. bond yields, market conditions for gold and silver have become markedly less favourable," Morgan Stanley said in a report.

"Our price profile for these two metals now acknowledges that the annual average peak in the price for these two metals was achieved in 2012, with minimal prospect for recovery."

U.S. gold futures for August delivery were up $7.60 an ounce at $1,284.70.

Silver was up 0.5 percent at $19.75 an ounce. Spot platinum was up 1.7 percent at $1,350.74 an ounce, while spot palladium was up 2.2 percent at $673.22 an ounce.

South Africa's Association of Mineworkers and Construction Union, which has emerged as the dominant union on the platinum belt after a vicious turf war with the rival National Union of Miners last year, wants gold producers to more than double the wages of entry-level miners, according to a document submitted to the companies.

(Editing by James Jukwey and David Goodman)

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