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Precious Metals Continued to Slip as China Eased Monetary Policy

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Oct. 27 2015, Published 7:11 a.m. ET

China eased monetary policy

As the US dollar picked up strength last week, precious metal prices slid. The DXY Currency gained a whopping 2.1% in the past week, which resulted in a fall in gold prices by 0.70%. As a result of China easing its monetary policy for the sixth time in a year, the US dollar got a boost. Also, it seems that the Federal Reserve will further push back the rate hike given the impact China has had on financial markets.

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China’s one-year benchmark bank lending rate was cut by 25 basis points to 4.4%, effective from October 24. The one-year benchmark deposit rate also fell by 1.5%, a reduction of 0.25 basis points. The policy decision by the PBOC (People’s Bank of China) reflects growing concern about the country’s GDP growth. It hit 6.9% in the third quarter of 2015, which is the lowest level seen since 2009. The reserve requirement ratio for the Chinese bank also saw a cut from 18% to 17.5%. Gold fell on Friday after the dollar soared to its highest in more than two months and China eased its monetary policy.

US rate hike may be delayed

The commodities market has been highly impacted by the news from China, primarily as a result of the huge demand that China has for commodities. Also, Chinese demand for commodities is higher than all other countries in the world. Gold futures on COMEX advanced to a high of $1,179.40 an ounce and then retreated to close lower than the previous day’s close. The gains in gold remained subdued as China’s easing fueled expectations that the US may tighten monetary policy in the current year.

Though precious metals slipped, miner ETFs like the Global X Silver Miners ETF (SIL) and the Sprott Gold Miners ETF (SGDM) gained 2.0% and 2.5%, respectively. Similarly, the mining companies also surged. Stocks like Centerra Gold (CG), New Gold (NGD), and Alamos Gold (AGI) were among the top gainers on Friday, October 23. These three companies make up 4.5% of the VanEck Vectors Gold Miners ETF (GDX).

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