Gold strengthens on demand for safe-haven
Source: www.chinamining.org Citation: Global Times/Agencies Date: August 14, 2015
Rally could be short-lived if U.S. dollar continues to gain ground
Gold rose for a fifth session in a row on Wednesday to trade near a three-week high, benefiting from safe-haven demand as risky assets slid after China`s devaluation of the yuan stoked fears of a currency war.
China`s surprise 2 percent devaluation of the yuan on Tuesday was seen as a move to bolster a flagging economy.
The move hit global equities, prompting some investors to seek safe-haven assets such as gold, which has now recovered more than 3 percent from a 5.5-year low of $1,077 that the precious metal hit in late July.
Asian stocks and emerging market currencies tumbled on Wednesday after China allowed the yuan to fall sharply for a second day.
Spot gold rose as much as 1 percent to its highest since July 20 at $1,119.80 an ounce in earlier trade and was up 0.8 percent at $1,117.76 by 0920 GMT.
"The only reason gold may benefit will be purely from a safe-haven perspective," said OCBC Bank analyst Barnabas Gan.
But if China`s action indeed spurs a currency war, every currency would depreciate and the dollar would continue to strengthen, said Gan, eventually weakening gold.
Gan also said the weaker yuan would make it more expensive for China, the world`s top consumer, to import gold, potentially extending weak Chinese demand that has been the case since 2014.
U.S. gold for December delivery gained 0.5 percent to $1,113.10 an ounce.
China`s currency devaluation is unlikely to distract the U.S. Federal Reserve from a domestic economy that appears increasingly ready for higher interest rates, economists and Fed watchers said.
That could limit gold`s upside potential. A looming hike in U.S. interest rates had weighed on non-interest yielding bullion.
"We are still looking for a rate hike this year despite all that`s happened," Gan said.
Spot silver dropped 0.4 percent to $15.22 an ounce after hitting a one-month high on Tuesday. Platinum was steady at $984.70 an ounce, having touched a three-week high overnight, while Palladium was little changed at $601.90.
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