Hope For China Stimulus Raises Gold Price

Seasonally-low volumes due to summer doldrums in western markets had bullion traders pausing to push their buy and sell buttons this week. That, combined with uncertainty as to whether central banks are going to stimulate lagging economies, had gold trading in a tight range of less than $10. 

Gold for December delivery settled at $1,612.80 on Tuesday and then advanced for the third time in four sessions on Wednesday on speculation that the European Central Bank will produce a plan to shore up flagging Spanish and Italian bonds, and hopes that Japanese and Chinese central banks will turn to monetary instruments.

On Thursday, bullion continued to climb on signs of weakness in China's manufacturing sector combined with higher crude oil prices and a rising US dollar.

Factory output in the world's largest copper- and gold-consuming nation hit a three-year low in July as industrial production for that month rose 9.2 percent compared to a 9.5 percent increase in June, Beijing reported. The news led investors to speculate that China could act to stimulate its economy in order to meet its 7.5 percent annual growth target.

"Gold and silver are a bit higher on expectation of more QE after the weaker Chinese data, and they are getting some technical buying as prices stay above $1,600," Reuters quoted Phillip Streible, a senior commodities broker at futures brokerage R.J. O'Brien, as saying.

QE stands for quantitative easing and refers to central banks increasing the money supply by buying government bonds, thereby keeping interest rates low. QE, however, is inflationary, and makes gold attractive as an investment.

At the end of Thursday's session, COMEX gold futures were trading higher, with gold for December delivery up $3.90 to $1,619.90 per ounce. Spot gold was up $4.90 to $1,618/oz.

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