Investing.com - Gold prices eased slightly on Monday, but held near a six-week peak as steep losses in global equity markets and receding expectations that the Federal Reserve will raise U.S. interest rates next month supported demand for the yellow metal.
The Shanghai Composite tumbled nearly 9% on Monday, the biggest one-day drop since February 2007, on investor disappointment that Beijing held back from implementing fresh measures over the weekend to support stocks after markets fell 11% last week.
In Europe, Germany's DAX crashed almost 3%, while the Dow and S&P 500 futures signaled a drop of at least 2% at the open, as fears of a China-led global economic slowdown spooked traders and rattled sentiment.
Financial markets have been roiled since China devalued the yuan on August 11, sparking a selloff in equities, commodities and emerging-market assets.
Gold futures for December delivery on the Comex division of the New York Mercantile Exchange shed $3.90, or 0.34%, to trade at $1,155.70 a troy ounce during European morning hours.
Gold rallied to $1,167.90 on Friday, the strongest level since July 7, as concerns over the health of the global economy fanned hopes that the Fed could delay raising interest rates till the very end of 2015.
Gold fell to a five-and-a-half year low of $1,072.30 on July 24 amid speculation the Fed will raise interest rates in September for the first time since 2006. But prices have since rebounded almost 9% on hopes of a delayed U.S. rate hike.
Some traders believe the U.S. central bank could postpone raising interest rates until December, as officials are likely to remain concerned over weak global growth and inflation pressures due to China’s shock currency devaluation move and plunging oil prices.
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.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.7% early Monday to 94.18, the weakest level since June 22.
The dollar has come under pressure as mounting uncertainty over the global growth outlook and the subdued U.S. inflation outlook has prompted investors to push back expectations for an initial rate hike by the Federal Reserve.
Elsewhere in metals trading, copper for September delivery on the Comex division of the New York Mercantile Exchange sank 5.8 cents, or 2.5%, to trade at $2.246 a pound during morning hours in London.
Futures dropped to an intraday low of $2.232, a level not seen since July 2009, as steep declines on Chinese stock markets dampened appetite for the red metal.
Market players are concerned that the plunge in the stock market could spread to other parts of the Chinese economy, triggering fears that the Asian nation's demand for the industrial metal will decline.
China is the world’s largest copper consumer, accounting for almost 40% of world consumption last year.