Gold rising in devalued yuan

On Monday New York closed at $1,103.30 up $11.20. The dollar was unchanged at $1.0978 with the dollar Index weaker at 97.46 down from 97.85. The dollar continued to weaken during London’s morning. This morning the LBMA gold price was set at $1,113.25 up $18.45. The euro equivalent was €1,009.52 up €8.51. Ahead of New York’s opening, gold was trading in London $1,114.00 and in the euro at €1,010.48.

The silver price closed at $15.24 up 47 cents in New York. Ahead of New York’s opening it was trading at $15.28.

Price Drivers

There were no sales from the SPDR gold ETF but 0.45 from the Gold Trust on Monday. The holdings of the SPDR gold ETF are at 667.694 tonnes and 161.38 tonnes in the Gold Trust.  The rise in the gold price came in the U.S. but on small turnover on COMEX. The dollar continued to weaken in London this morning but the gold price is running ahead of this fall, likely due to short covering on physical positions. We see very little selling happening in the short-term, leaving the market wide open for a short position closures. With these positions at record highs the first short to break ranks may start a stampede.

China devalued the Yuan by 1.9% yesterday in a reform that will allow the Yuan to move as the market makes it as opposed to the central bank deciding the rate. This reform is necessary for the Yuan to qualify as a currency that forms part of the IMF’s SDR currency. The change resulted in a move of the Yuan against the dollar from 6.2094 to 6.3233 yesterday.

Gold in the Yuan will rise by the extent of the Yuan’s fall. With so few Chinese dollar borrowers ‘covered’ against exchange rate moves we expect the current small move to prompt them to do so. Thereafter, we expect greater falls in the Yuan as it reflects market valuations more efficiently, benefiting gold even more.

Silver is running ahead of gold still.

Julian D.W. Phillips for the Gold & Silver Forecasters - and


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