Gold gains 1% on US rate cut bets, renewed purchases by China central bank

Dec 9 (Reuters) – Gold prices climbed 1% on Monday as China’s central bank resumed gold purchases after a six-month pause, while expectations for an interest rate cut at the Federal Reserve’s meeting next week strengthened.

Spot gold gained 1% to $2,657.98 per ounce, as of 1103 GMT. U.S. gold futures added 0.8% to $2,679.70.

“Falling U.S. interest rates and ongoing solid demand from central banks are supporting the gold price. (It) Was definitely good to see again purchases by the Chinese central bank last month, but other central banks have been also buying large quantities,” said UBS analyst Giovanni Staunovo.

Top consumer China’s central bank resumed gold purchases in November, potentially boosting investor demand. The People’s Bank of China (PBOC) paused its 18-month buying streak in May.

“The decision to increase gold holdings, particularly following Trump’s recent election victory, reflects the PBOC’s proactive approach to safeguarding economic stability amid evolving global conditions,” OCBC analysts said in a note.

Robust central bank buying, monetary policy easing and geopolitical tensions have driven gold to multiple record highs this year, setting the metal on track for its best year since 2010 with a over 28% increase so far.

This week, investors will focus on the U.S. Consumer Price Index (CPI), due Wednesday, followed by the Producer Price Index (PPI) on Thursday.

Traders are pricing an 87% chance of a 25-basis-point interest rate cut at next week’s Fed meeting, up from 61.6% last week, according to the CME Group’s FedWatch Tool, opens new tab, which would mark the third reduction this year.

Zero-yielding bullion thrives in a low interest rate environment and is considered a hedge against political and economic uncertainty.

Adding to political uncertainty in the Middle East, Syrian rebels seized Damascus, forcing President Bashar al-Assad to flee to Russia, ending 13 years of civil war and over 50 years of Assad family rule.

Spot silver added 2.1% to $31.61 per ounce, platinum rose 2.3% to $950.85 and palladium jumped 3.2% to $986.50.