Gold gains in Asia as low-interest rate outlook offers support

Investing.com - Gold prices gained in Asia on Monday after data from around the region since the weekend that investors noted mostly favored a low-interest rate environment, but also showed upbeat trends.

The HSBC China final manufacturing index for February rose to 50.7 into the expansion zone and above the flash reading of 50.1.

On Saturday, the People's Bank of China cut its benchmark interest rate by a quarter percentage point to 5.35%.

Also at the weekend, the February China Federation of Logistics and Purchasing (CFLP) manufacturing PMI improved for the first time in seven months, despite the Chinese New Year holiday, but remained just below the 50 mark, indicating that the sector contracted for a second straight month. The index rose to 49.9 in February from 49.8 in January.

On Monday, Australia's AI Group PMI fell 3.6 points to 45.4 in February, data released Monday showed. Also, the Melbourne Institute inflation gauge was flat in February, compared to a 0.1% expectation found in January. Business inventories in the fourth quarter in Australia fell 0.8%

In Japan, CAPEX data for non-financial firms rose 2.8% in the fourth quarter.

On the Comex division of the New York Mercantile Exchange, gold futures for April delivery rose 0.63% to $1,220.70 a troy ounce by close of trade on Friday.

Elsewhere on the Comex, silver futures for May delivery gained 1.12% to $16.743 a troy ounce by close of trade.

Meanwhile, copper for May delivery was up 0.21% to $2.694 a pound.

Prices of the red metal have been well-supported in recent sessions amid speculation policymakers in China will introduce fresh stimulus measures to boost growth and stave off deflation in the world's second largest economy.

On Saturday, the People's Bank of China cut its benchmark interest rate by a quarter percentage point to 5.35%.

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.

Official data released on Sunday showed that China's manufacturing purchasing managers' index rose to 49.9 in February, above expectations for a reading of 49.7 and up slightly from a two-year low of 49.8 in January.

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

Last week, gold ended higher for the third consecutive session on Friday, as traders pushed back expectations for the timing of the first U.S. rate hike following comments made by Federal Reserve Chair Janet Yellen earlier in the week.

Investors scaled back expectations for a mid-year rate hike after Fed chief Yellen said in testimony to the Senate Banking Committee on Tuesday that it was “unlikely” that economic conditions would warrant an interest rate increase for “at least the next couple of FOMC meetings”.

In a second day of testimony to the Financial Services Committee on Wednesday, Yellen reiterated this message, saying that wage growth and inflation must rise before the bank can hike rates, despite signs of improvement in the labor market.

Market analysts said the testimony gave the Fed more flexibility to hike rates later than June of this year.

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.

Data on Friday showed that the U.S. economy grew 2.2% in the fourth quarter, down from an initial estimate of 2.6%. In the third quarter, the economy expanded at rate of 5%.

In the week ahead, investors will be turning their attention to Friday’s U.S. nonfarm payrolls report for further indications on the strength of the recovery in the labor market.

On Monday, the euro zone is to produce preliminary data on consumer prices and a report on unemployment.

In the U.S., the Institute of Supply Management is to report on manufacturing activity.