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Gold Gains on Devalued Yuan

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Gold Gains on Devalued Yuan

china-goldSummer is winding down and India’s Autumn festivals are approaching, which should wake gold from its hibernation. Yesterday’s Bloomberg TV interview with the Fed’s Vice Chair, Stanley Fischer, helped the price of gold and seems to continue to help it. Gold price has maintained a steady streak, even hitting $1,113 early this morning and has also gained in China. Gold has been making a turn in the past few weeks.

Early this morning, the People’s Bank of China (PBOC) adjusted the yuan to the lowest it has been in two decades. The 1.9% dip is comparable to a Yuan devaluation from about twenty years ago in January of 1994.

The decrease of the yuan was rather surprising, but it likely dropped to compensate for the decreasing exports from China. Experts estimate that the drop in the yuan may help induce more exports and support China’s economic growth. This has strengthened gold in Asia as well as the Americas because of the unwinding of the the euro and yuan carry trade. drop in the US dollar.

In Europe, gold has eased, which is due, in part, to Greece’s acceptance of the much-talked-about bailout. The gain the Euro has made hasn’t done much to help gold in Europe. However, it might be best to keep a lookout on the progress of the Greek bailout to see how else the Euro and gold may be affected by it.

The euro rises slightly after Greece accepts a bailout deal. The euro rises slightly after Greece accepts a bailout deal.

The terms will await approval until Friday, giving Greece and other countries time to reject any of the terms. However, it is in the best interest for Greece to keep to its agreement.

It is uncertain as of yet how the dip in both the US dollar and the yuan will affect other markets, but experts expect international markets to compensate for the dips. US gold prices have remained steady and have even broken the $1,110 barrier at least twice today. In China, the yellow metal saw a three-week high after the devaluation of the Yuan as well.

After what was an unfortunate slump, gold seems to be beginning to even out. However, there is still much to consider. Speculations are that other international currencies may react unexpectedly to the devaluation of the yuan and the slight growth of the US dollar. While officials from the Fed may not be explicit on when rate hikes will begin, the delayed rates may be distorting the markets and may be making any forecasts less than reliable. On the bright side, gold is holding steady for today and, hopes are, it will keep steady or rise in the weeks to come.

About the Author

Everett Millman

Steven Cochran

Precious Metals Market Analyst
BS University of South Florida (2002)

A published writer, Steven's coverage of precious metals goes beyond the daily news to explain how ancillary factors affect the market.

Steven specializes in market analysis with an emphasis on stocks, corporate bonds, and government debt. He writes a monthly review of the precious metals markets for SurvivalBlog.com.

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