GOLD BULLION rose for a fifth session running on Wednesday, recording a London benchmark of $1119 per ounce as stock markets fell again amid a fresh drop in the Chinese Yuan.
Linking the Yuan’s reference rate to FX market values from Tuesday – rather than an official target level – the People’s Bank of China today said “there is no basis for persistent depreciation” of its currency.
But the Yuan dropped again, down 1.6% to four-year lows at one point, before suddenly halving that drop inside 5 minutes at the close of Shanghai trade.
Bullion priced in Yuan rose steeply again in near-record trade on the Shanghai Gold Exchange, gaining a premium over comparable London quotes of $6.50 per ounce – three times the last 12-months’ average and a strong incentive for new imports into the world’s No.1 consumer nation.
Silver prices rose twice as fast as gold in Dollar terms, hitting 1-month highs at $15.58 per ounce.
Eurozone stock markets lost 2.5% for the day as the single currency – currently subject to €60 billion of monthly QE by the European Central Bank – rose to 1-month highs against the Dollar, 2-month highs against the Japanese Yen, and 6-month highs vs. China’s Yuan.
That also capped the price of gold bullion in Euros near the last 4 weeks’ average of €1000 per ounce.
“Gold is benefiting from fears that this is a new round of ‘currency war’,” says Australian investment bank Macquarie’s precious metals analyst Matthew Turner in London, referring to exporter nations seeking an easy competitive advantage through devaluation.
“Talk of a currency war has prompted the move to gold,” agrees Barnabas Gan, an economist at Singapore-listed Asian bank OCBC, although the jump in prices “is all about how equities are not doing so well.”
“The actions of the Chinese central bank,” says Eugen Weinberg’s commodities team at Germany’s Commerzbank, “could lead to a devaluation race between currencies, especially in the Asian region, which should benefit gold.”
“Lower rate hike expectations are also giving gold a boost,” Commerzbank adds, noting that US interest-rate futures now put the odds of the Federal Reserve raising from 0% in September at one-in-three, down from a record 50% at the end of last week.
Having moved higher for 5 days – and taken out what Commerzbank’s weekly technical analysis previously saw as ‘resistance’ at $1114 per ounce – gold prices next face a hurdle at $1131 its latest chart-book reckons.
“The two-day consecutive close above $1105,” says London bullion market-maker Scotia Mocatta’s daily technical note – pointing to what it previously identified as resistance – “improves the likelihood that we have entered the correction phase of our large drop from [May’s 3-month high at] $1232 to [end-July’s new 5-year low of] $1078.
“The initial 38.2% Fibonacci target retracement is seen at $1137.”
Also applying Fibonacci ratios, “Another leg of [this] up move should unfold near term towards $1122 to $1226,” says Stephanie Aymes’ technical analysis at French investment bank and bullion market maker Societe Generale.
A “stiff hurdle” awaits at $1130-$1146, Aymes says – “the validation level” of a Head and Shoulders pattern signaling a return to $1080 and then targeting $1045 in the next 1-3 months.