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Gold prices dipped after hitting a near four-week high on Monday, as China's central bank cut reverse repo rates and injected liquidity into markets to help support the economy hit by a rapidly spreading coronavirus outbreak.
Chinese authorities pledged to use various monetary policy tools to ensure liquidity remains reasonably ample and to support firms affected by the outbreak in Wuhan, which has so far claimed 361 lives.
Also read:Coronavirus: Death toll tops 200 in China as WHO declares global emergency
Spot gold fell 0.6 per cent to $1,580.48 per ounce by 0407 GMT, having earlier risen to its highest since Jan. 8 at $1,591.46. US gold futures shed 0.2 per cent to $1,584.70.
“The fact that the People's Bank of China (PBOC) is backstopping (the impact from the virus) is driving gold lower,” said Stephen Innes, chief market strategist at AxiCorp. “Asia's fear factor has dropped so they're not buying gold ... but there'll be a considerable knock-on effect over the longer term, given the fact that 50 per cent of China is shut this week and there will be a drop in production and consumption.”
The dollar against a basket of rivals also firmed, making gold expensive for holders of other currencies.
Asian shares stumbled, oil skidded and commodities on Chinese exchanges plunged on their first trading day after the Lunar New Year break on fears the virus epidemic will hit demand in the world's second-largest economy.
Read more:Asian shares drop, commodities sink on virus fears after Lunar New Year break
Investors took stock of PBOC's measures, which included lowering of the 7-day reverse repo rate to 2.40 per cent and the 14-day tenor to 2.55 per cent, and an injection of 1.2 trillion yuan ($174 billion) worth of liquidity into the markets via reverse repo operations.
However, AxiCorp's Innes said “once we get through this 'band-aid effect', the reality will set in that there is an economic tumult about to happen in China, which is going to spread globally and force a lot of central banks to cut rates.”
Meanwhile, data showed China's factory activity expanded at its slowest pace in five months in January, which traders said likely did not reflect the early impact of the public health crisis which flared in late January and that the readings could worsen in the coming months.
Speculators cut their bullish positions in COMEX gold contracts in the week to January 28, data showed on Friday. Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, slipped 0.03 per cent to 903.21 tonnes on Friday.
Palladium lost 0.1 per cent to $2,276.81 an ounce, silver fell 1.2 per cent to $17.82, and platinum rose 0.1 per cent to $957.06.
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