Gold rose to a three-week high on Tuesday morning after China devalued the yuan by the most in two decades after a run of poor economic data.
The spot gold price was last at $1,112.5/1,113.4 per ounce, up $8.50 on the previous close. Trade has ranged from $1,094.0 to $1,119.5 so far.
The price rise was presumably triggered by the devaluation of the Chinese yuan overnight by the People’s Bank of China, Commerzbank noted.
As a result, the yuan fell to 6.3518 from around 6.2098 – its sharpest daily decline since 1994.
China’s move came in the wake of a string of weak economic data from the country – the data released over the weekend showed Chinese exports and imports down year-on-year in July, while producer prices dropped to its lowest level since 2009.
The dollar strengthened slightly following the devaluation, which initially provided support for gold prices – the dollar index was last at 97.19.
“But the uncertainty it produces in the currency markets may be supportive for gold”, William Adams, FastMarkets head of research, said.
“If China’s devaluation increases currency tensions in Asia, then the threat of further competitive currency devaluation could prompt some renewed interest in gold, especially in countries were investors do not have retail access to comprehensive financial services that they can use to hedge against devaluation,” Adams added.
Furthermore, in taking this step China has made it clear that it will not be tightening monetary policy as the US Federal Reserve is about to do, Commerzbank noted.
Overnight, Federal Reserve Vice Chairman Fischer stated that the labour market is nearly back to full health but inflation remains weak, whilst Atlanta Fed President Lockhart said he was “disposed” to begin raising rates next month, but expected a gradual process of lifting rates.
The CFTC fund position on gold remains net long and it climbed 5,435 contracts last week to 29,900 contracts, up from the previous week’s level that had been the lowest since December 2013.
The gross short position fell 3,620 contracts (short-covering) and the longs added 1,815 contracts. Two weeks ago the gross short position totalled 158,512 contracts, which was considerably extended compared with previous peaks of 121,225 in November 2014 and 111,855 in December 2013.
“This suggests the market is at risk of a short-covering rally should sentiment change – and that might be getting under way now,” Adams noted.
In today’s data, China’s new loans jumped to 1.48 trillion yuan from 1.28 trillion yuan and money supply expanded more than expected too. Out of Europe, German WPI disappointed at 0.1 percent, while the country’s ZEW economic sentiment was also worse than expected at 25.0. Eurozone’s ZEW economic sentiment was better than forecast, rising to 47.6.
Data out later includes the US small business index, non-farm productivity, unit labour costs and wholesale inventories.
In the other precious metals, silver was little changed at $15.33/15.38. Platinum at $993/998 was $11 higher – it hit the $1,000 mark earlier this morning – its highest in around three weeks. Palladium at $618/623 climbed $10.
(Editing by Martin Hayes)
The post Gold climbs, hits 3-week high on Chinese yuan devaluation appeared first on The Bullion Desk.
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