Gold slides from near 4-week high on China's 'band-aid' measures

Gold prices dipped after hitting a near four-week high on Monday, as China's central bank cut reverse repo rates and injected liquidity into markets to help support the economy hit by a rapidly spreading coronavirus outbreak.

Chinese authorities pledged to use various monetary policy tools to ensure liquidity remains reasonably ample and to support firms affected by the outbreak in Wuhan, which has so far claimed 361 lives.

Spot gold fell 0.6% to $1,580.48 per ounce by 0407 GMT, having earlier risen to its highest since Jan. 8 at $1,591.46. US gold futures shed 0.2% to $1,584.70.

"The fact that the People's Bank of China (PBOC) is backstopping (the impact from the virus) is driving gold lower," said Stephen Innes, chief market strategist at AxiCorp.

"Asia's fear factor has dropped so they're not buying gold, but there'll be a considerable knock-on effect over the longer term, given the fact that 50% of China is shut this week and there will be a drop in production and consumption."

Investors took stock of PBOC's measures, which included lowering of the 7-day reverse repo rate to 2.40% and the 14-day tenor to 2.55%, and an injection of 1.2 trillion yuan ($174 billion) worth of liquidity into the markets via reverse repo operations.

However, AxiCorp's Innes said "once we get through this 'band-aid effect', the reality will set in that there is an economic tumult about to happen in China, which is going to spread globally and force a lot of central banks to cut rates."

Speculators cut their bullish positions in COMEX gold contracts in the week to Jan. 28, data showed on Friday.

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, slipped 0.03% to 903.21 tons on Friday.

Palladium lost 0.1% to $2,276.81 an ounce, silver fell 1.2% to $17.82, and platinum rose 0.1% to $957.06.