Gold surges on yuan devaluation

Up Rs 1,000 per 10 grams in 2 days, following global developments and weakening rupee

The price of gold rose to nearly a month's high in early Wednesday trade before punters booked profits which pulled down the yellow metal from the day’s peak. Still, gold recorded a gain of around four per cent or Rs 900 per 10g in two days.

Standard gold touched Rs 26,000 per 10g, a level not seen after July 17 but the slipped on profit booking by stockists. Gold closed at Rs 25,900 per 10g, a rise of Rs 380 from Tuesday.

 

Silver rose five per cent in two days, in line, to close at Rs 36,200 a kilo at Zaveri Bazaar here.

Base metals widened their losses, with copper at $5,063 an ounce on the benchmark London Metal Exchange on Wednesday, following fear of lower import by China. With a devaluation in the Chinese currency, the yuan, imports are set to become costlier. Nickel plunged to the lowest level since 2008, while copper, zinc and aluminium extended their declines.

 

“Gold moved up due to the yuan devaluation. Depreciation in the rupee against the dollar supported the move. In fact, falling global equity markets left little investment options for investors. When investors lack investment avenues, funds move towards gold and that has happened,” said Gnanasekar Thiagarajan, Director, Commtrendz Research.

In global markets, too, gold a touched three–week high to trade at $1,118 an oz, a gain of $9 from previous closes. Silver followed to trade at $15.38 an oz early Wednesday in London.

The rupee fell to 64.77 a dollar from Rs 64.19 on Tuesday, which also led to higher gold prices.

The Chinese central bank devalued the currency by 1.9 per cent against the dollar on Tuesday night. Since Monday’s close, the yuan is down by nearly four per cent and is at the lowest level since July 2011.

According to Samson Li, senior analyst with GFMS Thomson Reuters, “Demand for gold will go up in China due to fear of decline in the buying power of the currency.

“Investors in looking for an exit strategy might enter gold as an alternative investment vehicle.”

Bullion also got support from expectations that the US Federal Reserve might not raise interest rates in September, prolonging the decision to the end of this year or early next year, following satisfactory growth in the country's economy.

"Gold's gain is a temporary phenomenon, following a recovery in the euro against the dollar. But, gold is expected to remain in a range between $1,080 and $1,135 an ounce in the near term. However, sharp volatility cannot be ruled out," said Bhargav Vaidya, an analyst with B N Vaidya & Associates.

Greece reached an agreement with its lenders on a bailout package, which supported the euro's gain against the dollar on Wednesday.

Surprisingly, fresh booking continued even after the sudden rise in gold prices. Customer footfalls at retail jewellery showrooms remained higher by 10-15 per cent from normal days when gold was near Rs 25,000 per 10g.

"Stabilising of the price with an upward bias has escalated gold demand from retail consumers. Stockists are also building their inventory on lows to meet orders in the ensuing festive season," said Ketan Shroff, Director, Penta Gold.