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The price of gold fell on Monday and riskier assets rallied after the news of the weekend that the Chinese central bank, the People's Bank of China, was considering adjusting its monetary policy. The central bank unveiled a policy rate reform aimed at reducing corporate borrowing costs and supporting the slowdown in the economy.
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Technical analysis
The price of gold fell by 1.1% on Monday as the offer of safe haven values evaporated. Prices have come close to their highest level in six years and are about to test target support near an upwardly rising trend line of around 1,440. Resistance is observed near the old support near the 10-day moving average at 1,503. The short-term momentum remains negative because the fast-moving stochastic has generated a cross-sell signal in overbought territory and continues to follow a downward path. The current reading on the fast stochastic is 81 above the overbought trigger level of 80, which could suggest a correction. Medium-term dynamics become negative as the Moving Average Convergence Divergence (MACD) histogram prints in the dark with a declining trajectory. The MACD is about to generate a cross sell signal.
Easing rate of the Chinese central bank
The People's Bank of China (PBOC) has announced that it will improve the mechanism used to establish the preferential loan rate to further reduce real interest rates for businesses. This decision highlights the government's attempts to use the reforms to support the slowing economy. The central bank will improve the efficiency of interest rate transmission and reduce financing costs, which should help support economic growth. The new LPR ratings of Chinese banks will be based on open market transaction rates and the national interbank financing center will be allowed to publish the rate. The central bank added that bonds of five years or more would be added to the existing one-year LPR, which will help banks set rates for long-term loans such as mortgages.
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