Further weakness in China’s currency and investors’ concerns over the outlook for the nation’s property market might spur gold demand in Asia’s top economy, according to Goldman Sachs Group Inc, which made the forecast as the offshore yuan sank to a record.
“The potential drivers of increased Chinese physical buying include purchasing gold as a way to hedge for potential currency depreciation in the face of capital controls,” analysts, including Jeffrey Currie and Max Layton, wrote in a report on Monday.
Bullion consumption in China might also rise “as a way of diversifying away from the property market,” they said.
The potential for stronger demand might help prop up prices that are headed for a monthly loss as the US Federal Reserve prepares the ground for higher US interest rates.
The offshore yuan dropped this week as Chinese policy makers signaled they are willing to allow greater currency flexibility amid a slump in exports and rise in the greenback. Beijing has also moved to rein in excessive speculation in real estate after a run-up in prices.
Chinese physical gold exchange-traded funds holdings “have increased further and appear correlated with recent yuan depreciation,” the analysts said. “Should the recent decline in property prices in October and yuan depreciation continue we may see Chinese gold investment demand respond.”
Goldman reiterated its view any sell-off substantially below US$1,250 an ounce (28.3g) should be seen as a buying opportunity and the bank remains broadly neutral on the outlook for gold through the year-end.
Metal for immediate delivery was at US$1,267.56 yesterday, while on the Shanghai Gold Exchange, bullion of 99.99 percent purity was at 277.20 yuan per gram.
Shipments of gold from Switzerland to China increased from 19.9 tons in August to 35.5 tonnes last month, according to figures from the Web site of Swiss Federal Customs Administration.
The offshore yuan exchange rate was at 6.7836 per US dollar at 1:01pm in Hong Kong, after dropping to 6.7885 per US dollar, the weakest intraday level in data going back to 2010.
In Shanghai, the currency was little changed at 6.7760 per US dollar, close to a six-year low and past the 6.75 per US dollar year-end median forecast in a Bloomberg survey.
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