Dollar rise, ECB cut push gold

LONDON — Gold fell on Thursday as the dollar rose and investors took profits after a widely anticipated European Central Bank (ECB) rate cut, cancelling gains made earlier on a surprise rate cut by China.

Spot gold was down 0.8 percent at $1,601.20 an ounce at 1326 GMT, falling from a session high of $1,623.80 after China’s move.

While lower interest rates are usually positive for gold prices, the ECB decision had been widely expected.

“It’s been a case of buy the rumor all week and now probably some profit taking on the announcement,” Societe Generale analyst Robin Bhar said.

China’s central bank cut interest rates for the second time in a month on Thursday in the latest attempt to bolster slowing growth in the world’s second-largest economy.

Benchmark lending rates will be lowered by 31 basis points to 6 percent, and deposit rates will be reduced by 25 basis points to 3 percent, the People’s Bank of China said in a statement on its website.

Bullion is still up 0.4 percent on the week, potentially heading towards its first back-to-back weekly gains since late February.

“Overall, rate cuts by China, the ECB, and the US are all positive for gold, on a slightly longer view than just one day for the simple reason that with inflation where it is, you start cutting interest rates of course then real interest rates get lower,” Walter de Wet, analyst at Standard Bank, said.

“Like many other commodities gold has been struggling under a lack of direction and this might give it a little more impetus. We think gold will go above $1,900 in the last quarter on exactly these reasons,” he said.

Low real interest rates, which strip out the effect of inflation, make gold more attractive to own, given that it bears no yield or dividend that can be eroded by an environment of loose monetary policy. Investors rely on increases in its outright value for a return on their investment.

The Bank of England left rates unchanged and launched a third round of quantitative easing, to the tune of 50 billion pounds.

A report by a payrolls processor that showed US private employers added 176,000 jobs in June topped economists’ expectations and could bode well for employment data on Friday. — Reuters