Gold futures trade close to 2-week high on China stimulus move

Investing.com - Gold traded just below a two-week high on Monday, as investors reacted to an interest rate cut in China over the weekend.

Lower interest rates can give gold a lift, as it decreases the relative cost of holding on to the metal, which doesn't offer investors any similar guaranteed payout.

On the Comex division of the New York Mercantile Exchange, gold futures for April delivery ticked up $4.60, or 0.38%, to trade at $1,217.70 a troy ounce during European morning hours after hitting an intraday high of $1,223.00, the most since February 17.

On Friday, gold rose $3.00, or 0.25%, to settle at $1,213.10.

Futures were likely to find support at $1,204.10, the low from February 27, and near-term resistance at $1,236.70, the high from February 17.

Meanwhile, silver futures for May delivery climbed 13.9 cents, or 0.84%, to trade at $16.69 a troy ounce.

The People's Bank of China cut its benchmark interest rate by a quarter percentage point to 5.35% over the weekend in an effort to boost growth and stave off deflation in the world's second largest economy.

It was the second rate cut in less than four months, indicating that Beijing is becoming more aggressive in supporting the economy as its momentum slows and deflation risks rise.

Expectations of monetary stimulus tend to benefit gold, as the metal is seen as a safe store of value and inflation hedge.

Prices of the precious metal remained supported as market participants pushed back expectations for the timing of the first U.S. rate hike following comments made by Federal Reserve Chair Janet Yellen last week.

A delay in raising interest rates would be seen as bullish for gold, as it decreases the relative cost of holding on to the metal, which doesn't offer investors any similar guaranteed payout.

Investors were looking ahead to the U.S. Institute of Supply Management's report on U.S. manufacturing activity later in the day for further indications on the strength of the economy.

Elsewhere on the Comex, copper for May delivery inched up 1.1 cents, or 0.42%, to trade at $2.703 a pound after touching a session high of $2.716, the most since January 13.

A pair of manufacturing reports released over the past two days painted a mixed picture of the health of China's manufacturing sector.

The HSBC final manufacturing index for February released earlier rose to 50.7, above the flash reading of 50.1.

In contrast, the official China's manufacturing purchasing managers' index published on Sunday came in at 49.9 in February, just above expectations for a reading of 49.7 and up slightly from a two-year low of 49.8 in January.

The mixed data added more pressure on policymakers to stimulate a faltering economy.

The Asian nation is the world’s largest copper consumer, accounting for almost 40% of world consumption last year.

Meanwhile, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.15% to 95.44, the highest level since 2003.