Gold (NYSEArca: GLD) Prices Higher on China Announcement
Spot-gold prices are up solidly in early Monday trading following China’s announcement on Saturday that it will allow the yuan to revalue.
Analysts said market sentiment has improved on the announcement, with the expectations of a weakening dollar driving gold process higher at the moment.
At 0806 EST, spot gold traded at $1262.47 a troy ounce, up 0.45% from Friday’s close. Gold reached a new record high at 0040 EST of $1,265.05 per ounce.
Silver was higher by 24 cents, up 2.6% from Friday’s close.
Andrey Kryuchenkov, analyst at VTB Capital said China’s move to allow the yuan to revalue against the dollar is positive for higher gold prices, but noted that the amount of the Chinese revaluation is still unknown. Others said the timing of the announcement suggests that China is posturing prior to the G20 summit meeting in Toronto on June 26-27, and does not indicate a meaningful change in monetary policy.
“Sentiment is positive this morning following through from that announcement, but the problem is that we don’t know yet exactly what will happen,” Mr. Kryuchenkov said.
“China wants to show a sign of goodwill in the lead-up to the summit, and while it is positive it will be interesting to see the markets reaction.”
Bjarne Schieldrop, analyst for SEB, is more sanguine about the gold market. Schieldrop expects an upward revaluation of the yuan is dollar bearish and could spark China exporting inflation to the United States. “It almost seems like no matter what happens with risk appetite, equity markets and economic outlook, it is going to be bullish for gold,” he said.
The demand for gold appears to be gaining traction among investors of the two largest economies of the world, the United States and Eurozone, where fears of future inflation remain relatively high.
VTB’s Kryuchenkov said: “Gold is still a very difficult one to call. I think there will be a pullback in the week ahead, because you can’t turn high all the time.
“But, because of what is happening in the eurozone and the U.S., as well as yields on currencies–which are expected to stay low for a while yet–the short-to-medium term outlook for gold remains well-supported.”
Spot gold reached a record Friday of $1,256.7 per ounce on safe haven buying stemming from problems in Spain banks surfacing during the day.
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