Gold struggles even as equities drop further after China rate cut

Investors remained wary of a near-term hike in US interest rates

Gold slipped on Wednesday, struggling to draw buyers even as Asian stocks fell further despite China's latest policy easing with investors remaining wary of a near-term hike in US interest rates.

Bullion erased early gains to extend Tuesday's 1.2% drop that came after a recovery in global equities following China's move to cut interest rates and bank reserve requirements.

But stocks resumed their decline in Asia on Wednesday as investors feared China's actions would not be enough to stabilise its cooling economy or halt a collapse in its stock markets. 

That has, however, failed to switch appetite back to gold, typically seen as a safe haven.

"The key factor that underpins the bearish view for gold is very much the Fed rate hike expectation and that possibility is not off the table," said Barnabas Gan, analyst at OCBC Bank in Singapore.

Spot gold was down 0.3% at $1,137.20 an ounce by 0257 GMT, on track for a third day of losses. The metal's 1.2% fall on Tuesday was its steepest since July 20.

US gold for December delivery dropped 0.1% to $1,136.90 an ounce.

US consumer confidence hit a seven-month high in August and new single-family home sales rebounded in July, suggesting underlying strength in the economy that could still allow the Federal Reserve to hike rates this year.

OCBC's Gan said gold, which touched a near seven-week high of $1,168.40 last week, could only rally towards $1,200 "if there is confirmation that a US rate hike will not happen this year".

Chinese stocks continued to lead Asia lower, with the Shanghai composite down nearly 3%.

"Drip-feed of stimulus might not be sufficient to arrest aggressive bears, or significantly lift the economy in a demand-constrained world," Mizuho Bank said in a note on China's policy action.

Palladium was off 0.4% at $533.90 an ounce after tumbling more than 6% overnight, its steepest fall since April 2013. The metal, mainly used in emissions control systems for cars, trucks and other vehicles, hit a five-year trough of $528.50 on Tuesday and has lost around 11% so far this week.

Platinum was steady at $973.80 an ounce and silver dipped 0.5% to $14.61.