Gold edges down after China data boosts dollar

Gold edged lower on Friday after weaker-than-expected first-quarter growth data from China prompted a modest rise in the dollar, but losses were capped as the slower growth fueled prospects for further monetary easing.

The world's second-largest economy experienced a fifth consecutive quarter of slowing growth in the first three months of 2012, with gross domestic product expanding at a lower-than-expected 8.1%. The dollar index inched up 0.2% at the expense of commodity currencies that were disappointed at the China GDP figures, putting some pressure on dollar-priced commodities including gold. "The slowdown in China's economy dampened commodities as well as commodity currencies such as the Australian dollar," said Ronald Leung, a dealer at Lee Cheong Gold Dealers in Hong Kong. The Chinese data coincided with a pause after gold's 1% rally in the previous session, as downbeat US job market data fanned speculation of more monetary stimulus and Federal Reserve officials said the central bank was ready to act if the economy deteriorated. Spot gold fell to an intra-day low of USD 1,671.44 after the GDP data, but pared some losses to USD 1,673.34 by 0634 GMT. Prices were on course for weekly gains of more than 2%, the biggest one-week rise since late February. US gold inched down 0.4% to USD 1,674.80. Technical analysis suggested spot gold might face resistance at USD 1,680 an ounce, said Reuters market analyst Wang Tao. Dominic Schnider, head of commodity research at UBS Wealth Management in Singapore, said though China's lower-than-expected GDP data could lead to expectations of more easing from Beijing, growth in gold demand may fall short of the dazzling pace in the past couple of years and weigh on gold prices. "We are still looking at a break of the uptrend in the second quarter and prices to fall towards USD 1,520 as a result," he said, adding the stable holdings in physically backed exchange-traded gold funds indicated sluggish growth in gold investment demand. The amount of gold held by the major physically backed exchange-traded funds edged higher on the day to nearly 70.295 million ounces, near its all-time high of 70.899 million ounces. CME CUTS MARGINS FOR SILVER, PALLADIUM The CME Group said it will cut the margins for COMEX silver futures by 12.5% and 9.5% for NYMEX palladium futures, from the close of business on April 16. This will be the second time the CME will cut silver margins since February, is an attempt to boost trading interest. COMEX silver fell 0.8% to USD 32.26, reversing a 3% rise in the previous session.