Gold rally pauses as China central bank’s yuan fix impedes run to $1,500

Spot gold was 0.1% higher at $1,464.73 an ounce yesterday in London, after earlier advancing as much as 0.8% to $1,474.93 an ounce, the highest since May 2013

Gold is taking a break from its trade-war fuelled rally, reversing earlier gains to trade little changed after the People’s Bank of China took steps to slow the yuan’s decline. Bullion hit a six-year high earlier in the day, after the Trump administration labelled China a currency manipulator, underscoring the deteriorating relationship between the two nations. The gain was rolled back after the PBoC set the daily fixing at 6.9683 per dollar, stronger than expected. The metal is up 14% this year as the impact of the trade war weighs on the global economic outlook, potentially fuelling the need for more central bank easing. 

Markets were roiled at the start of this week, with equities tumbling and the yield on 10-year Treasuries near a level last seen before the 2016 US election as investors weighed the latest twists and turns in the conflict. Holdings in gold-backed exchange-traded funds rose to the highest in more than six years. “The labelling of China as a currency manipulator is really a symbolic gesture,” said Michael McCarthy, chief market strategist at CMC Markets. Still, escalation “is bad news for the global growth scenario and the global economic outlook and while that’s the case I’d expect to see support for gold.”  Spot gold was 0.1% higher at $1,464.73 an ounce yesterday in London, after earlier advancing as much as 0.8% to $1,474.93 an ounce, the highest since May 2013. The Bloomberg Dollar Spot Index is heading for its four consecutive daily decline.

Suki Cooper, precious metals analyst at Standard Chartered Bank, discusses gold prices and her outlook for the metal. The price of gold may have paused for breath on Tuesday but investors seeking to buy dips may find that difficult, said Adrian Ash, director of research at BullionVault Ltd.“Central banks remain heavy gold buyers, interest rates are now falling, and any further weakness in the global economy could see the return of QE,” he said. “Interest from new investors is meantime rising sharply as geopolitical and financial risks pile up with the new government deficit spending.”  People’s Bank of China governor Yi Gang said Monday the nation won’t use exchange rates as a tool in the trade dispute. Nevertheless, President Donald Trump tweeted that the yuan’s slide represented a “major violation.” Investors will now be closely monitoring the Federal Reserve’s next moves. 

Chairman Jerome Powell called last week’s quarter-point interest rate cut a “mid-cycle adjustment,” not the first in a long series of moves. Still, Goldman Sachs Group Inc now sees a total of three reductions this year. In China, bullion of 99.99% purity advanced as much as 1.6% to 337.40 yuan a gram on the Shanghai Gold Exchange, the highest level since 2013, before slipping back to 333.07. In other precious metals, spot silver and platinum both declined while palladium rose.

Sources and photo-credits: Gulf Times, Bloomberg