GOLD BULLION dropped $10 per ounce from new 4-week highs hit overnight at $1126 on Thursday as the Chinese Yuan fell for a third day on the FX market but commodity and world equity prices rebounded.
Silver prices held firmer, ending London trade just 10 cents shy of an earlier 1-month high at $15.60 per ounce, some 8% above late July’s 6-year low.
After switching the Yuan’s daily reference point to market- rather than government-determined rates this week, there is “no basis for persistent and substantial devaluation,” said People’s Bank deputy-governor Zhang Xiaohui at a news conference.
“After a relatively subdued H1,” it goes on – reporting a 12% year-on-year drop for world gold demand between April and June – “reasons for cautious optimism [include] the onset of the festival and wedding season in India…and tentative signs [of better private-sector] appetite in China.”
Gold bullion contracts in Shanghai held flat on strong trade Thursday in Yuan terms, but cut the premium to London quotes from $6 to around $1.80 per ounce as Asian and notably European stock markets rallied hard.
“Today’s further 1.1% weakening in the Renminbi’s reference rate is no longer a shock for the market,” says Chinese-owned ICBC Standard Bank.
“A degree of calm has returned to the base metals complex” after this week’s fresh plunge to new multi-year lows.
“A Yuan devaluation of even 5%,” says Australian investment bank Macquarie’s analyst Matthew Turner, is very small in comparison to the swings in Yuan metal prices we have seen this year – in some cases 20-30%.”
Looking ahead, “The devaluation is [more] symptomatic of the underlying problems for commodities than a new bear factor in its own right.”
“This is another bearish catalyst [for commodities], but not much,” agrees Swiss bank UBS’s analyst Daniel Morgan, speaking to The Australian Financial Review.
For precious metals, on the other hand, “China’s decision to devalue could offer support for gold and more specifically [for mining] equities,” reckons a note from Germany’s Deutsche Bank, upgrading its view of several producers including major gold miners Barrick (NYSE:ABX) and Newmont (NYSE:NEM).
Bullion holdings at the giant SPDR Gold Trust (NYSEArca:GLD) yesterday saw the first inflow – needed to back the number of shares in issue – since mid-July, taking the total to 671 tonnes, a fresh 7-year low when first reached last week.
Tuesday’s rise in silver prices, in contrast, saw holdings at the iShares Silver Trust
(NYSEArca:SLV) fall to the lowest level in two months at 10,107 tonnes, down some 2% from this year’s highs and 7% below late-2014’s peak when prices fell hard in November.
“Silver breached technical resistance at 15.30 and looks set to test 16.00,” reckons a trading note from Swiss refiner and finance group MKS.
“The next major level to watch for gold is the break-out level from early last month when the market gapped $50 lower at $1130/32.”