Gold slips below $1,090 on China’s loan blues

27/01/2010 00:00 AST

Gold prices slipped below $1,090 an ounce in Europe on Tuesday as China’s implementation of a clampdown on lending lifted the dollar versus the euro, undermining bullion’s appeal as an alternative asset.

Higher-yielding and commodity-related currencies are sensitive to any hints that China may be putting the brakes on its economy. Spot gold was bid at $1,089.15 an ounce at 1210 GMT, against $1,097.95 late in New York on Monday.

US gold futures for February delivery on the COMEX division of the New York Mercantile Exchange fell $6.50 to $1,089.20 an ounce.

“It looks as though gold has found some support here, but I wouldn’t be surprised to see more weakness,” said Standard Chartered analyst Daniel Smith. “A lot will be determined by the outlook for the dollar, so clearly the US GDP number on Friday will be very important for that,” he added. “If it is stronger than expected, the dollar will strengthen and gold will suffer.”

The outcome of the Federal Reserve’s meeting on interest rates, due to conclude on Thursday, will also be key for the US currency, he said. The Fed is not expected to indicate a benchmark rate hike is imminent. Gold prices fell along with the euro on Tuesday as risk aversion increased, while equities also slipped.

China’s central bank told banks that need to raise reserve ratios to implement the change on Tuesday, banking sources said.

In addition, Standard & Poor’s cut its rating outlook on Japan, hitting investor confidence about global economic recovery. European shares fell for a fifth day, while stock futures pointed to a lower opening on Wall Street.

The Economic Times