Daily Gold Update

Source: Bill Musgrave, American Gold Exchange

Austin— Gold fell 1.3% to close above $1,138 after China cut interest rates to stabilize its plummeting markets, triggering a global rally in stocks and cutting demand for safe havens.

After its stock markets tumbled more than 20% in four days, China cut interest rates and bank-reserve requirements today, effectively flooding another $105 billion to its beleaguered economy. The surprise move was seen as an attempt to re-inflate asset prices and reassure world markets by kick-starting growth and liquidity in the world's second-largest economy.

Global stocks rebounded after the China cuts, with bargain-hunters swooping into most markets. Following its worst day in four years, Wall Street temporarily enjoyed its biggest rally of 2015, with the Dow surging nearly 500 points by mid-session before sliding back at the close to a 200-point loss. European stocks closed 4.2% higher, rebounding from their worst day since 2008.

The dollar recovered somewhat after Monday's 1.7% drubbing, picking up 1.1% against major rivals. The buck is still down nearly 1% this week. A stronger dollar pressures gold and other commodities by making them more expensive overseas.

The dollar's upside is capped by growing expectations that the Fed will have to postpone raising interest rates until late this year, or even next year, because of heightened market volatility and rising global deflationary pressure. The CME Fedwatch tool now shows the probability of a September hike falling to just 21%, down from 50% a few weeks ago, while January 2016 has risen to 54%.

Ray Dalio, founder of Bridgewater, the world's largest hedge fund, is predicting that the Fed will be forced to launch another round of quantitative easing before long. In a rearch note to clients, Dalio said falling commodity prices and massive new easing efforts by China, including today's rate cuts and the recent devaluation of the yuan, put the risk of global deflation squarely on the table. Tantamount to printing money, QE is intended to forestall deflation by stimulating inflation. Gold rose over $1,900 in 2011 during earlier rounds of QE.

The other precious metals also finished lower. Silver dropped 0.8% while platinum and palladium lost 1.3% and 6.3%, respectively.

At the Comex close: December gold fell $15.30 to $1,138.30; September silver dropped 12 cents to $14.65; October platinum slid $13.40 to $978.10; and October palladium dumped $35.50 to $539.55 an ounce.