GOLD PRICED in Dollars hit a 3-week high early Tuesday, touching $1118 per ounce after Beijing surprised currency traders and analysts by announcing an immediate 2% devaluation in the Chinese Yuan’s official exchange rate.
Gaining 1.8% against the Dollar in the last hour of Shanghai trade, gold prices hit 4-week highs for Chinese traders on the heaviest-ever volume in the city’s main gold bullion contract.
Silver bullion extended Monday’s jump through $15 per ounce, touching 4-week highs against the Dollar above $15.40 and rallying $1 per ounce from last week’s trip back to July’s new 6-year low.
Gold prices for Eurozone investors, in contrast, quickly lost a 1.4% spike to €1013 per ounce, dropping back to struggle just above €1000 as the 19-nation single currency jumped against all major competitors on the FX market.
Ordering Chinese banks to re-align their Dollar/Yuan reference rate – and resulting in an immediate drop to 3-year lows for the CNY – the People’s Bank of China said the move would “enable the exchange rate to play a key role in adjusting foreign exchange demand and supply.”
“The only surprise is that the PBoC has not acted sooner,” says economist Francis Coppola at Forbes magazine online, pointing to the Shanghai stockmarket’s 25% crash, as well as the “massive over-leverage of the Chinese economy”, and the sharp drop in Chinese exports, especially to Europe and Japan.
The Yuan’s real exchange rate had risen 14% since mid-2014, notes former Bank of England policy-maker Andew Sentance, hurting its export-dependent economy.
New data overnight showed new bank lending in China surging by a record amount in July, as the broad money supply grew at its fastest pace in a year, expanding 13.3% from the same month in 2014.
Beijing’s move “could possibly kill off the September rate hike” from US central bank the Federal Reserve, reckons UK brokeage ADS Securities, “as any further gains by the Dollar could cause more problems for the US economy.”
Two Fed policymakers said separately on Monday they were preparing to vote for a rate hike at next month’s meeting.
But having forecast a Chinese devaluation earlier this summer, Societe Generale’s strategist Albert Edwards last month warned that slowing global growth – coupled with today’s record government debts – means “QE will be stepped up to such a pace that you will hear the roar of the printing presses from Mars.
“Gold is a must-have holding in that world.”
Shares in China’s largest gold miner, Zijin Mining (SHA:601899), today jumped almost 10%, leading sharp gains for precious metals shares on the Shanghai stock market.
Gold priced in Chinese Yuan ended Tuesday’s trade some 2.2%.
New data from government-approved trade body the China Gold Association meantime put gold consumption down just 1.4% in the first half of 2015 from the same period last year, contradicting weaker gold imports data through Hong Kong.
“In other words,” says a commodities note from Germany’s Commerzbank, “[wholesale] stocks were reduced between January and June, which means [they] now need to be replenished.
“This could result in higher Chinese gold imports in the second half of the year, which should in turn lend support to the gold price.”
However, gold mining output in China – the world’s No.1 producer nation since 2007 – grew a further 8.4% on the CGA’s data, matching 40% of private jewelry, investment and industrial demand.
