Gold drops as China stimulus bets lift appetite for risk

LONDON (Reuters) - Gold fell on Tuesday as the dollar and equity markets rose after data showing China’s weakest economic growth in years fanned stimulus hopes and spurred investors towards riskier assets.

A woman holds a one-kilogram gold bar at the headquarters of the Australian Bullion Company (ABC) in Sydney April 19, 2013. REUTERS/Daniel Munoz

Data showed that the world’s second-biggest economy grew 6.8 percent in the fourth quarter, the slowest rate since 2009. For 2015 as a whole China’s growth came in at 6.9 percent, the weakest in 25 years.

Spot gold was down 0.4 percent at $1,084.60 an ounce by 1247 GMT (0747 EDT) after a lethargic session on Monday when U.S. markets shut for the Martin Luther King holiday. U.S. gold for February delivery fell 0.6 percent to $1,084.20.

Bullion had scaled a two-month high of $1,112 on Jan. 8 as investor appetite for risk decreased on renewed concerns about global growth, especially a slowdown in China and whether authorities in Beijing can manage it.

“As long as there is confusion about how China manages exchange rate policy, how they will intervene in the stock market and so on, there will be some safe-haven demand for gold,” Danske Bank senior analyst Jens Pedersen said.

“However, even though we have seen a re-pricing of the Fed’s rate hike this year (the market doesn’t expect a full rate hike before December), we haven’t seen much dollar weakness and that’s because the market is expecting monetary easing from other central banks.”

The dollar was up 0.2 percent against a basket of major currencies, making gold more expensive for foreign holders.

Gold slid 10 percent last year on fears that higher U.S. interest rates would lower demand for the non-interest-paying asset and continued dollar strength caps gold’s upside.

Weak physical demand from top gold consumers China and India has also limited gold’s upside potential, analysts said, with Chinese consumer spending dented by its slowing economy.

“It seems unlikely that any particular group would put a floor under the gold price at this stage,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

Spot platinum climbed 1.3 percent to $828.81 an ounce after falling to a seven-year low of $812.95 in the previous session.

Palladium rose 1.5 percent to $498.95 and silver gained 0.5 percent to $14.02.

Additional reporting by Manolo Serapio Jr. in Manila; Editing by David Goodman