Gold rose up to 1 percent early on Wednesday, reversing the previous session's losses, as share prices dropped and China's central bank moved to make more money available for lending to help stimulate its flagging economy. To do this the central bank cut the amount of cash that banks must hold as reserves, the first industry-wide cut since May 2012.
Spot gold rose to a session high of $1,271.80 an ounce and was up 0.8 percent at $1,270.05 an ounce by 1515 GMT, after posting its fourth drop in five sessions, down 1.2 percent, on Tuesday. "Gold's rally this year has partly been based on this premise that central banks are losing their fight against slower growth and deflation and are having to take even more radical monetary policy measures and this plays into that narrative," Macquarie analyst Matthew Turner said.
"But it's also because China is a huge consumer of gold and economic growth should boost demand. That said we're really talking about impact on the margin." Further monetary easing favours gold as ultra-low interest rates encourage investors to put money into non-interest-bearing assets instead. But while major economies such as China and Europe continue to pump more money into their systems, the United States is moving towards a tightening cycle.
Spot prices have largely retreated from a five-month peak of $1,306.20 on January 22, paring the metal's year-to-date gain to less than 7 percent. US gold for April delivery also rose 0.8 percent to $1,270.50 an ounce. European share prices dipped and the euro's exchange rate eased after optimism regarding a possible debt deal for Greece cooled.
Greece's new government dropped calls for a write-off of its foreign debt and instead proposed official creditors swap debt for growth-linked bonds. Wall Street also opened lower after data showed US private employers added 213,000 jobs in January, falling short of analysts' forecasts. Gold rose in spite of a stronger dollar, which was 0.4 percent higher against a basket of leading currencies, helped by a jump in US Treasury yields.
Investors will have more economic data to digest later in the week, which will culminate with Friday's US non-farm payrolls, usually considered an important gauge of the strength of the economy. "The US data this week is part of the big picture. If the figures surprise on the upside they could add to the view that the Fed will hike rates in June," Natixis analyst Bernard Dahdah said. Spot silver rose 1.8 percent to $17.58 an ounce. Palladium gained 1.1 percent to $794.58 an ounce and platinum was up 1 percent at $1,241.50 an ounce.