Gold spikes after consecutive days of yuan devaluing

Otmane El Rhazi from The Bullion Desk.

Gold prices jumped after investors flooded into precious metals on news that the Chinese government extended their devaluation of the yuan.

Gold for December delivery on the Comex division of the New York Mercantile Exchange increased $9.30 or 0.9 percent $1,117.10 per ounce. Trade has ranged from $1,1101.10 to $1,1121.20.

The People’s Bank of China (PBoC) devalued their currency for the second consecutive day by 1.6 percent – after saying yesterday’s 1.9 percent move was a one-off event – as weaker than expected data was released.

Chinese industrial production year-over-year in July was at six percent, below the forecast of 6.7 percent, while fixed asset investment in the first seven months was at 11.2 percent, the lowest mark since 2000.

Additionally, retail sales year-over-year in July were at 10.5 percent, below the 10.6 prediction.

The bank is reacting to poor export data, a slumping equity market and attempts to boost GDP to targeted levels of seven percent.

“We found it almost comical that many here in the West believed the first comments from anonymous Chinese officials that the devaluation yesterday was to be a ‘one-off’ event,” Dennis Gartman, editor and publisher of The Gartman Letter, said.  “All we know for certain is that ownership of gold in non-US dollar terms has proven to be far the wiser investment.”

Gold is seen as a safe haven for investors during turbulent periods – the yellow-metal acts as a hedging mechanisms for rapid price swings.

In other data today, the June Italian trade balance disappointed at a 2.81 billion euro surplus, as did the eurozone’s industrial production, falling 0.4 percent.

The US figures later include job openings, crude oil inventories and the Federal budget balance.

Turning to wider markets, Germany’s DAX and France’s CAC-40 were down 2.3 percent and 2.5 percent respectively, while the euro was one percent stronger at 1.1156 against the dollar.

As for other precious metals, Comex Silver for September settlement rose 10.1 cents to $15.385 per ounce. Trade has ranged from $15.125 to $15.460.

Platinum for October delivery increased $1.20 to $993.20 per ounce, while the most actively traded palladium contract was at $608.00, up $8.75.

(Editing by Tom Jennemann)

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