Gold falls after two-day rise on China growth fears

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold slipped on Wednesday after two days of gains as weak China trade data raised fears of an economic slowdown in the world's second-biggest consumer of the metal.

China has been a big support for gold prices, which have lost a quarter of their value this year due to a possible scale back of the U.S. Federal Reserve's monetary stimulus, outflows from exchange-traded funds (ETFs) and import restrictions in top buyer India.

Data on Wednesday showed that China's exports fell 3.1 percent in June, the first decline since January 2012, while imports dropped 0.7 percent, severely missing market expectations and reinforcing signs of a economic slowdown in the second quarter.

"China doesn't release gold import data but the reading of the (other) numbers suggests a slowdown in the economy. Gold demand may not be as strong as earlier in the year," said a trader in Hong Kong.

The only gauge of China's gold imports is trade data from Hong Kong. China's imports from Hong Kong doubled to over 400 tonnes for the first five months of the year, data last week showed.

The trader said the markets were now waiting for Fed Chairman Ben Bernanke's speech later in the day to gauge the outlook for the U.S. central bank's $85 billion monthly bond purchases.

Those purchases have raised worries about higher inflation, boosting demand for gold, which is seen as a hedge against rising prices. The stimulus measures have also boosted liquidity overall and driven funds into commodities.

Bullion has fallen nearly 10 percent since Bernanke said last month the U.S. economy was recovering strongly enough for the Fed to slow the pace of its asset purchases.

Spot gold fell 0.3 percent to $1,245.10 an ounce by 0341 GMT on Wednesday, after falling to as low as 1,243.54 earlier. Comex gold was down 0.2 percent at $1,243.50.

Gold hit a one-week high on Tuesday, its second straight daily gain, helped by higher-than-expected Chinese inflation data.

"It was only a rebound from the lower levels we saw in the last two weeks, not due to strong fundamentals," said another Hong Kong-based trader.

Bullion hit a near three-year low of $1,180.71 on June 28.

Indian gold demand continued to be soft following government restrictions on imports and financing. A weak rupee is also hurting.

Holdings in SPDR Gold Trust, the largest gold-backed ETF, are at four-year lows as investors shunned bullion this year and chose higher-yielding stocks instead.

Source: http://news.yahoo.com/gold-falls-two-day-rise-china-growth-fears-072231326.html

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