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Gold Retreats From Two-Week High on Chinese Stimulus

February 17, 2020 at 15:55 by Andrew Moran

Gold futures are easing from their best levels in two weeks as China unleashed fiscal and monetary stimulus to contain the economic fallout from the Wuhan coronavirus. The yellow metal may slip even further in the coming days as Beijing has hinted at additional stimulus measures to sustain growth and protect the economy from the harmful effects of Covid-19.

April gold futures shed $1.80, or 0.11%, to $1,584.60 per ounce at 14:37 GMT on Monday on the Comex division of the New York Mercantile Exchange. Gold, which recorded a gain of about 0.6% last week, had been trading at its best level since the beginning of the month before retreating.

Silver, the sister commodity to gold, is posting tepid gains to kick off the holiday-shortened trading week. March silver futures picked up $0.03, or 0.16%, to $17.765 per ounce. Despite last week’s small 0.23% gain, the white metal is still down nearly 1% so far this year.

Precious metals are mostly subdued at the start of the trading week because financial markets are bullish on China unleashing new stimulus measures to keep the world’s second-largest economy going amid the coronavirus.

The People’s Bank of China (PBoC) announced on Monday that it reduced the medium-tern lending rate by ten basis points to 3.15%, a three-year low. By lowering the rate, Beijing injects about $29 billion of one-year medium-term loans into the market. Experts say the next move by the central bank will be to cut the reserve requirement ratio (RRR) again to free up billions to spur a slowing economy.

So far this month, the PBoC has injected more than $200 billion of liquidity into the equities market to cozy stocks, which has minimized the ocean of red ink that Beijing experienced immediately upon return from the Lunar New Year holiday. It has also ordered banks to tolerate more bad loans, despite financial institutions revealing that they are having a tough time sustaining operations under current conditions.

Meanwhile, the federal government has said that it plans to impose targeted tax cuts, in addition to the across-the-board tax cuts that were announced earlier this month.

Back in the US, the White House confirmed that it was considering a new tax incentive that would allow households earning up to $200,000 per year to invest $10,000 in the stock market. Administration officials said that this is just one of the many proposals being talked about as part of its tax cuts 2.0 plan. While it did not ignite a spike in the market, proponents say that the idea would spark greater stock ownership – 55% of Americans today own stocks.

It was all quiet on the data front due to the Presidents Day holiday, but on Tuesday analysts will be combing over net capital flows, foreign bond investment, and manufacturing and housing indexes.

In other metal markets, April copper futures surged $0.0275, or 1.06%, to $2.627 per pound. March platinum futures added $2.40, or 0.25%, to $971.20 per ounce. March palladium futures tacked on $84.90, or 3.66%, to $2,401.60 an ounce.

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