Gold rose up to 1 percent on Wednesday, reversing the previous session’s losses, as share prices dropped and China’s central bank moved to make more money available for lending to help stimulate its flagging economy.
To do this the central bank cut the amount of cash that banks must hold as reserves, the first industry-wide cut since May 2012.
Spot gold rose to a session high of $1,271.80 an ounce and was up 0.8 percent at $1,270.05 an ounce by 1515 GMT, after posting its fourth drop in five sessions, down 1.2 percent, on Tuesday.
“Gold’s rally this year has partly been based on this premise that central banks are losing their fight against slower growth and deflation and are having to take even more radical monetary policy measures and this plays into that narrative,” Macquarie analyst Matthew Turner said.
“But it’s also because China is a huge consumer of gold and economic growth should boost demand. That said we’re really talking about impact on the margin.”
Further monetary easing favours gold as ultra-low interest rates encourage investors to put money into non-interest-bearing assets instead. But while major economies such as China and Europe continue to pump more money into their systems, the United States is moving towards a tightening cycle.