Gold continued to climb higher during Wednesday trading sessions as China’s second currency devaluation in two days is seen as reigniting currency wars in Asia.
The spot gold price was last at $1,117/1,117.7 per ounce, up $8.50 on Tuesday’s close. Trade has ranged from $1,102.0 to $1,119.8 so far.
“For today, all eyes will be on China again with dollar/yuam likely to lead the move in metals,” MKS said in a note.
The yuan is falling rapidly, it was last at 6.5206, having spent most of the second quarter flat around 6.2100. Other emerging market currencies are also considerably weaker.
China devalued its currency for the second time in two days today by 1.6 percent in an attempt to increase global competitiveness to drive exports. Trade data released over the weekend showed China’s exports falling 8.3 percent in July from the year earlier.
“This has spooked international markets due to the decreased potential for Chinese driven growth – bolstering safe haven demand,” Tom Moore, FastMarkets analyst, said.
The move followed yesterday’s cutting of the reference rate by 1.9 percent – the biggest one day fall since 1994.
“After a long time when gold has not performed as a safe-haven it seems to be doing so now – at least it is acting as a store of value while other metals and equities are showing weakness,” William Adams, FastMarkets head of research, said.
As China exports its deflation, a lower yuan will make Chinese exports cheaper and it may be that the Fed delays rising rates, Adams noted.
The probability of the Fed raising interest rates in September dropped to only around a third, according to the Fed Fund Future, Commerzbank noted.
“It may be that more downward pressure emerges once the initial currency gyrations have worked through the markets – this could possibly further support gold,” Adams said.
Equities are under pressure again today with Asian and European shares moving lower.
The economic agenda is busy today – data out already showed up uptick in Japanese industrial production and industrial activity, although PPI continues to weaken.
China’s July industrial production growth fell to 6.0 percent, from 6.8 percent, fixed asset investment growth was at 11.2 percent, after 11.4 percent the previous month, while retail sales were up 10.5 percent, compared with 10.6 percent previously.
Out of the eurozone, the June Italian trade balance disappointed at a 2.81 billion euro surplus.
Still to come is eurozone industrial production, while the US figures includes job openings, crude oil inventories and the Federal budget balance.
In the other precious metals, silver was unchanged at $15.30/15.35. Platinum at $988/993 was up $8 and palladium at $604/609 climbed $4.
“Platinum and palladium, the precious metals with an industrial character, are clearly tied more closely to gold at present, as they have been largely able to resist the sell-off of base metals,” Commerzbank noted.
(Editing by Martin Hayes)
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