Investing.com -- Gold futures fell slightly after reaching seven-week highs on Monday, as China rattled markets throughout the world amid speculation that its central bank is on the verge of injecting further liquidity measures in an effort to jumpstart its flagging economy.
On the Comex division of the New York Mercantile Exchange, gold for December delivery wavered between $1,152.00 and $1,169.50 a troy ounce before settling at $1,155.00, down 4.60 or 0.40% on the session. At one point on Monday, gold futures surged to its highest level since July 7 before falling back on a choppy day of trading. Still, the precious metal is close to erasing nearly all of its losses suffered last month during one of its worst 10-day stretches over the last two decades.
Gold likely gained support at $1,132.10, the low from August 20 and was met with resistance at $1,186 the high from June 29.
On Monday, the Shanghai Composite Index plunged 8.5% suffering its sharpest fall since 2007, as a dearth of activity from the People's Bank of China created a market-wide panic. Chinese index futures, meanwhile, fell by their limit of 10% providing strong indications that the downturn will continue. The massive sell-off comes days after Chinese manufacturing data dropped to its lowest level since the Financial Crisis, underscoring persistent sluggishness in the world's second-largest economy. While Chinese GDP grew by 7% over the first half of 2015, many analysts believe China's economy is decelerating and could suffer its slowest full-year growth in a quarter century.
Over the weekend, the People's Bank of China (PBOC) gave approval for local government pension funds to invest in Chinese equities, a policy move that could result in close to $100 billion being invested in stock markets nationwide. The PBOC is also expected to cut the Reserve Ratio Requirement (RRR) or amount that banks are forced to hold in reserves over the next several weeks, the Wall Street Journal reported. The PBOC has lowered the RRR by a total of 200 basis points in three separate cuts since February in an effort to accelerate economic growth. Another reduction of 50 to 100 basis points could pump more liquidity into the economy to stave off a massive capital outflow away from Chinese markets.
Following the activities of the past three days, many investors expected the PBOC to enact short-term measures on Monday to prevent a surge of capital from flowing out of Chinese markets. On Aug. 11, the Chinese central bank spooked global foreign exchange markets by devaluing the yuan by 1.9%, its largest one-day amount in more than a decade. Ever since, the PBOC has been forced to spend nearly $200 billion to prevent the yuan from falling even further below its desired level, the Financial Times reported.
China is the world's largest producer of gold and the second-largest consumer of the precious metal behind India.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, plummeted more than 1.4% to an eight-month low of 93.47 in U.S. morning trading. While it pared some of the losses in the afternoon session, the index still stood at 93.81 early on Monday afternoon, down roughly 1% on the day.
Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.
Silver for September delivery plunged 0.436 or 2.82% to 14.865 an ounce.
Copper for September fell to a six-year low at 2.209 a pound, before rising slightly to 2.259 – down 0.045 or 1.93% on the session. China accounts for more than 40% of the world's consumption of copper.