Gold gains on China buying support

Singapore: Gold inched up on Monday after dropping 2 per cent in the previous session, as buying in China offset fears the Federal Reserve could soon begin to scale back its monetary stimulus on the strength of recent jobs data.

The US added more jobs in May than the month before, curbing hopes of prolonged stimulus and weighing on gold’s appeal as a hedge against inflation.

“China has been the only supporting factor for gold in Asia trading sessions recently,” said Victor Thianpiriya, commodities analyst at Australia and New Zealand Banking Group.

Demand for gold in China, the second-biggest bullion buyer after India, has grown since prices touched a two-year low around $1,320 (Dh4,848) an ounce in April, with tight supply pushing premiums to record highs.

Spot gold had inched up 0.2 per cent to $1,386.46 an ounce by 4am GMT after its biggest one-day drop in over three weeks on Friday, when funds dumped bullion on the concerns over the outlook for the Fed’s bond-buying programme.

Data from China over the weekend suggested risks are rising that the country’s economic growth will slide further in the second quarter after unexpected weakness in May trade and domestic activity. Any signs of weakness in the Chinese economy could prompt investors to switch to gold holdings and away from stock markets.

Philadelphia Fed President Charles Plosser said on Friday the jobs report showed that government spending cuts have so far not been as damaging as some feared and that the central bank should reduce its bond buying “now”.

Plosser, however, is in the minority of the Fed’s 19 policy-makers. The majority appear to still support buying $85 billion in Treasury and mortgage bonds per month to spur investment, hiring and overall economic growth.

“Job gains need to be sustained before the Fed starts to consider bringing forward the tapering,” ANZ’s Thianpiriya said, adding that most market participants expect the winding down to begin in the fourth quarter of this year or early next year.

A better-performing stock market has attracted investors this year, sapping some appetite for gold.

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.06 per cent to 1,007.14 tonnes on Friday — their lowest in four years.

But hedge funds and money managers increased their bullish bets in both gold and silver futures and options for a second consecutive week, a report by the Commodity Futures Trading Commission showed on Friday.