Gold has been beaten up for months, sinking to the lowest level since 2010 in July, as investors cut holdings in favor of other assets and the US dollar jumped. China’s progressive devaluation may be helping turn the tide.
The precious metal held the biggest one-day gain in three months yesterday to trade near a three-week high on concern that the market turmoil triggered by China’s move might weaken currencies and even delay the onset of higher US interest rates.
Investors are “returning back to the safety of gold amid market concerns around a potential currency war,” Australia & New Zealand Banking Group Ltd said in a report.
“Emerging markets are going to come under even more pressure from China’s yuan move; volatility is rising. Buckle up,” the report said.
Gold prices have sunk 5.1 percent this year, on course for their third consecutive annual decline, the longest losing streak since 2000, as signs of recovery in the US lifted equities, boosted the US dollar and prompted the US Federal Reserve to lay the groundwork for higher rates.
China’s decision this week to weaken its currency may boost the chances of competitive devaluations, reinvigorating bullion’s allure as a store of value. The US dollar dropped on Wednesday as traders pared bets that the Federal Reserve is to start to tighten policy from next month.
Price of gold for immediate delivery was little changed at US$1,121.40 an ounce at 3:07pm in Singapore after rising as much as 0.2 percent to US$1,126.89, the highest price since July 20, according to Bloomberg generic pricing. The metal jumped 1.4 percent on Wednesday, the most since May 13.
China’s yuan reference rate fell for a third consecutive day yesterday, widening the scope for declines in the currency of Asia’s top economy. The fixing dropped 1.1 percent, after slides of 1.6 percent and 1.9 percent in the last two days.
Last quarter, appetite for gold shrank to the lowest in six years as buyers in China and India, the two biggest markets, saw incomes hit separately by a volatile stock market and a weak harvest, the World Gold Council said in a report yesterday.
Demand dropped 12 percent to 914.9 tonnes from the same period a year ago, the council said. In China, demand fell 3 percent and in India by a quarter.
“China and India are very, very important players in the global gold market,” World Gold Council director of market intelligence Alistair Hewitt said.
Rural incomes in India suffered from a weaker-than-expected harvest last year and poor weather this year, Hewitt said.
Global jewelry demand slid 14 percent to 513.5 tonnes in the second quarter from a year earlier, and investment demand was 11 percent lower at 178.5 tonnes, the council said.
Central banks remained net buyers, increasing purchases by 11 percent to 137.4 tonnes from the previous quarter.
That is their 18th consecutive quarter of purchases, Hewitt said. He sees them buying 400 to 500 tonnes by the end of the year.
Indian and Chinese demand is seen recovering in the second half, with each nation expected to consume 900 to 1,000 tonnes for the whole of the year, Hewitt said.
The council is hearing “positive stories of greater traffic at jewelry retailers, of banks talking about greater interest in bar and coins and gold accounts,” he said.
Hewitt said that a reasonable harvest this year “should support gold demand when we come to the crucial Diwali period” in India.
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