The Chinese central bank's announcement of higher rates Tuesday arrived alongside some pessimistic trading patterns in the equities and sent investors running for cover across the board.
The People's Bank of China said it would raise lending and deposit rates in an effort to curb inflation and the asset bubbles that are developing in the world's second-largest market – particularly in the real estate sector.
The news tempered expectations that China's economy will continue to grow at a furious rate, and drove demand for the dollar. Despite its current relative weakness and some concern about the effects of another round of quantitative easing, the greenback retains an important role as a haven asset and a reserve currency. A rising dollar typically means less demand for precious metals, so it's no surprise that gold futures and silver futures slumped on the China news.
"Higher global rates are bad for gold," Bayram Dincer, an analyst at Swiss firm LGT Capital Management, told Bloomberg News.
On the Globex electronic exchange, December gold futures lost $31.40 to trade at $1,340.70 per troy ounce. Silver futures for December delivery dropped 72.3 cents to trade at $23.69 per troy ounce.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.