Gold drops to 2-wk low as equity advance curbs haven demand

Singapore - Gold dropped to a two-week low as equities gained on the outlook for more central-bank stimulus, curbing demand for the metal as a haven.

Global stocks are near the highest this year. While the Bank of England on Thursday unexpectedly kept interest rates unchanged, it signalled more stimulus will come in August to aid the economy following the UK’s vote to leave the European Union.

Speculation has also grown that Prime Minister Shinzo Abe is contemplating so-called helicopter money to revive Japan.

Gold is still up 25% this year as the Brexit fallout and outlook for low US rates boosted demand for a store of value and alternative to currencies. Bullion has fallen 3.4% since touching a two-year high on Monday.

"We’re seeing a healthy correction at the moment after a strong build up in long positions both before and after the Brexit vote last month," Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by phone.

"As long as we have very low bond yields and the prospect of stimulus potentially creating inflation, then there’s not going to be any major shift in sentiment towards precious metals.”

Gold price

Gold for immediate delivery fell 1% to $1,328.76 an ounce by 12:17 p.m. in London. Prices earlier touched $1 324.75, the lowest since July 1.

"With the BOE and the Bank of Japan likely to implement further easing measures in due course, we expect gold to remain well bid," Jordan Eliseo, Sydney-based chief economist at trader Australian Bullion, said by e-mail before the BOE’s announcement.

Still, the US economy shouldn’t sustain much damage from the Brexit vote and may warrant as many as two interest-rate increases before the end of the year, Federal Reserve Bank of Philadelphia President Patrick Harker said on Wednesday.

Traders are pricing in a 4% probability of a rate increase at this month’s policy meeting. Odds of a move in December are 31%.

In other precious metals news:

Holdings in gold-backed exchange-traded funds added 1.1 metric tonnes to 2 003.1 tons on Wednesday, data compiled by Bloomberg show. Silver prices lost 1%. Platinum dropped 1.1% and palladium declined 0.8%.