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Gold dips as worries over China’s yuan devaluation ease

Gold dips as worries over China's yuan devaluation easeLONDON: Gold fell nearly 1 percent on Thursday, snapping five sessions of gains, as concerns over further losses in the yuan after China devalued the currency this week eased, allowing stock markets and the dollar to rebound.

Falling equities, dollar strength and speculation that the weaker yuan could delay a US interest rate rise sparked a short-covering rally in gold this week after its recent drop to 5-1/2 year lows, pushing prices to their highest since mid-July.

Spot gold was down 0.8 percent at $ 1,116.41 an ounce at 0942 GMT, while US gold futures for December delivery were down $ 7.60 an ounce at $ 1,116.00. Spot prices earlier reached a three-week high of $ 1,126.31, 4.5 percent above last month’s low.

“Many people had short positions in the gold market — it was a crowded trade,” LBBW analyst Thorsten Proettel said.

“In the last few days we’ve seen a short squeeze, but this isn’t the end of the pressure on the gold price. We still have interest rate hike positivity in the United States, and that will pressure gold prices in the future.”

The dollar index rose 0.3 percent on Thursday, after falling in the previous session on doubts over whether the Federal Reserve will raise rates in September given the devaluation of the yuan. Investors had been betting the Fed could raise rates at its next policy meeting, a move seen as negative for gold, as it would lift the opportunity cost of holding non-yielding bullion while boosting the dollar. China’s yuan fell for a third day on Thursday but the People’s Bank of China said there is no basis for further depreciation in the currency.

European shares rallied on Thursday after the comments.

“Verbal intervention by the PBoC on (the yuan) has given markets a better risk tone today,” RBC Capital Markets said in a note.

Gold demand hit a six-year low in the second quarter, a World Gold Council report showed, as sluggish prices and the prospect of better returns in equities curbed interest in the metal. SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings rose 0.6 percent to 21.6 million ounces on Wednesday, the first increase in days after falling to the lowest since September 2008.

Spot palladium was down 1.6 percent at $ 613.22 an ounce after hitting a two-week high of $ 627 earlier.

Platinum was down 0.8 percent at $ 988.24 an ounce and silver was down 1.1 percent at $ 15.32 an ounce.

Copyright Reuters, 2015

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