Gold price holds three-week highs as market digests China move

Otmane El Rhazi from The Bullion Desk.

Gold held around three-week highs in London afternoon trading as the market digested the impact of China devaluing its currency to boost the slowing economy.

The spot gold price was last at $1,109.60/1,110.20 per ounce, up $5.20 on Monday’s close, but down from its intraday peak of $1,119.50. Trade has ranged from $1,094.0 to $1,119.50 so far.

Overnight, the People’s Bank of China reduced the value of the yuan by 1.9 percent against the dollar, the biggest drop since 1994. The Chinese economy has seen exports drop by 8.3 percent in July and a volatile equity market spook investors.

Concerns about currency wars picking up boosted the gold price, William Adams, FastMarkets head of research, noted.

“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.

In other news, Greece and its lenders reached an 85 billion euro bailout agreement on Tuesday. The 23-hour session led to a three-year programme with Greek banks receiving 10 billion euros immediately.

The deal allows the Mediterranean country to repay an existing 3.2 billion euro payment to the European Central Bank due by August 20.

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.

Out of the US, the NFIB small business index came as expected at 95.4, while preliminary unit labour costs and preliminary nonfarm productivity were both better than expected at 0.5 percent and 1.3 percent respectively.

In the other precious metals, silver was little changed at $15.26/15.31. Platinum at $982/987 was unchanged, having earlier hit $1,000 – its highest level in three weeks. Palladium at $603/608 fell $5.

(Additional reporting by Dalton Barker, editing by Martin Hayes)

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