PBOC Seems To Have Little Effect On Metals

Gold continued to trickle down dipping $1.40 this morning to trade at 1136.90. Gold settled down on Tuesday amid easing anxiety of a possible stock market meltdown after China cut its benchmark interest rates to boost a faltering economy. The move encouraged investors back to equities with some bargain hunting evident in the process. In other precious metals Palladium dropped 0.7 per cent to 534.30 an ounce, extending a 6.3 per cent plunge on Tuesday to the lowest close since Sept 21, 2010. Silver for immediate delivery retreated 0.6 per cent to 14.6103 an ounce, while platinum was unchanged at 977.25.

The Chines decision to lower interest rates helped bring stability to global equity markets and as well bolstered the U.S. dollar, following yesterday’s massive declines in global equity markets over fears focused on the economic doldrums in China. The Chinese authorities lowered interest rates overnight, hoping to jump start what was the world’s fastest growing global economy.

This helped equities snap back yesterdays after brutal losses in the previous session. The interest rates were reduced by 0.25 percentage points each, the People’s Bank of China said in a statement on its website.

The U.S. markets are also trading higher, with bargain hunting contributing to the early strength on Wall Street after some steep losses in recent days. Nonetheless, China’s benchmark Shanghai Index plunged 7.63 percent, following its 8.49 percent plunge the previous day. The precious metal sector was mixed with as gold reacted negatively to some upbeat economic data out of the U.S. with CCI showing substantial improvement in August, rebounding from decline last month to a seven-month high. China’s stocks swung between gains and losses as traders weighed the impact of interest-rate cuts after the steepest four-day equity plunge since 1996. Volatility in global financial markets is “worrisome” and will hamper the Federal Reserve’s ability to raise interest rates in September.

Meanwhile, new home sales in in the U.S. also showed a notable rebound in July, after reporting a sharp drop in the previous month. Now sentiments are improving in physical market as Holdings of SPDR Gold Trust, started moving up to 681.10 tons from its previous close of 677.83 tons on Monday.

China’s PBoC reduced the reserve ratio (RRR) by 50 bps and also reduced one year lending and deposit rates by 25 bps each to infuse liquidity and prop up demand in the Chinese economy. Though this policy action is likely aid demand in the world’s largest consumer of industrial metal, the markets failed to recover and did not react too positively on the news. Copper remains near the bottom of its trading range at 2.290 down 5 points this morning but it did show a small gain on Tuesday but nowhere near a recovery.