Gold. Picture: REUTERS
Gold. Picture: REUTERS

Bengaluru — Gold fell on Monday as the dollar firmed after China’s central bank eased its domestic policy to support the economy amid concerns that an escalating trade dispute with the US could hurt growth.

The People’s Bank of China (PBoC) on Sunday announced a steep cut in the level of cash that banks must hold as reserves, stepping up moves to lower financing costs and spur growth.

Spot gold was down 0.5% at $1,196.61/oz at 4.41am GMT. US gold futures fell 0.5% to $1,200.50/oz.

“Although the dollar index has not gained much, the decision by China might be seen by some market participants as some sign of softness as a result of the trade war, which could benefit the dollar,” said John Sharma, an economist at National Australia Bank.

The dollar was up 0.1% against a basket of six major currencies, as China followed an easing in domestic policy by allowing yuan to fall, though the drop was not as sharp as some had feared.

“Maybe, the trade war is affecting China more than realised and therefore the need to ease on policy, which dampened demand for gold there,” a Singapore-based trader said.

Gold prices have fallen more than 12% from a peak in April largely due to strength in the dollar, which has benefited from a vibrant US economy, rising US interest rates and fears of a global trade war.

US unemployment rate fell to near a 49-year low, as per the labour department’s monthly employment report on Friday, which also showed a steady rise in wages, suggesting moderate inflation pressures, that could keep the Federal Reserve on a path of gradual interest rate increases.

“After very rosy comments from Fed chair [Jerome] Powell earlier in the week and a decidedly hawkish post-FOMC [Federal open market committee] presser, this data needed only to avoid an improbable disaster to unlock further steepening of the priced-in Fed outlook,” said Ilya Spivak, a currency strategist for Dailyfx.

“To that end, its passing seemed to give the green light to traders withholding directional conviction until after event risk has passed.”

Spot gold may test a support at $1,193/oz, a break below which could cause a loss to the next support at $1,188, while a break above $1,201 could lead to a gain into $1,207-$1,214 range, said Reuters technical analyst Wang Tao.

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund (ETF), fell 0.20% to 730.17 tons, on Friday.

Speculators cut their net short position in Comex gold by 4,186 contracts to 73,128 in week to October 2.

Spot silver fell 0.7% to $14.48/oz.

Palladium was down 0.3% to $1,066.10 and platinum inched 0.7% lower at $814.74/oz.