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China Doubles Rate of Gold Buying, Yuan Devaluation 'the Big Focus' for Bullion Gains

Friday, August 14, 2015 6:27

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Adrian Ash is head of research at BullionVault, the world-leading gold trading & ownership service online…

GOLD BULLION rose near $1120 per ounce in London trade Friday, heading for only the second weekly rise in 8 as China followed this week’s Yuan devaluation by reporting additional gold reserves for the second time in a month.

The Yuan rose slightly on the FX market, recouping a little of the week’s earlier 3.5% drop after the People’s Bank of China (PBoC) moved Tuesday to a ‘market determined’ reference rate for its currency.

Asian shares held flat, but Shanghai equities closed the week almost 6% higher from last Friday as China’s securities regulator said Beijing may reduce its recent intervention to support the market after this summer’s near 30% plunge.

Eurozone stock markets fell again, with Germany’s Dax index dropping 4.5% for the week as the single currency extended its rise on the FX market.

Data from the PBoC – central bank in the world’s heaviest gold consuming nation – today said it bought 19.3 tonnes for its bullion reserves during July, reaching above 1677 tonnes in total.

“The news is bullish at first glance,” reckons Carsten Fritsch, commodities analyst at Germany’s Commerzbank, “but the monthly volume of 19 tonnes is maybe less than some would have expected.”

Many Western analysts and pundits were disappointed by China’s gold reserves update last month, when it said the state’s bullion holdings had grown from 1054 tonnes to 1668 tonne since April 2009.

Equaling average monthly buying of 8.2 tonnes, that moved China back into 5th place amongst sovereign state holders, ahead of Russia.

Moscow’s average monthly gold buying over the last 6 years has been just below 10 tonnes, taking its gold bullion reserves to 1273 tonnes on end-July’s data.

Reporting monthly “is a tough standard,” the Financial Times quotes Matthew Turner in London at Australia’s Macquarie investment bank, “historically [applied] largely [by] the developed economies.

“The Chinese devaluation is the right [news] to focus on for the gold market,” Turner also tells Bloomberg.

“When central bankers lose control, as the PBoC appeared to do this week, gold tends to do well.”

“Gold rose [this week],” says New York analyst Dane Davis at bullion market maker Barclays bank, “because some investors initially thought the [US] Fed would delay [its] rate increase after China devalued.

“But that seems to have passed.”

Over in Hong Kong, “The Yuan devaluation is making people uncertain about the economy,” Reuters quotes Ronald Leung at Lee Cheong Gold Dealers.

“If gold prices hold at current levels, maybe some physical demand will come back a bit.”

Bullion premiums above London prices on the Shanghai Gold Exchange – which had spiked to $6.50 per ounce on this week’s Yuan devaluation – today eased back to historical norms at $2.50 on quieter trading volumes.

Gold priced in Euros meantime neared the weekend at €1003 per ounce – barely 0.5% higher from last Friday compared with a 2.2% gain for Dollar investors and a 5.2% rise in terms of the Yuan.

One Chinese export manager today called the PBoC’s new currency policy “a big bonus”, reports the official Xinhua news agency.

“The cheaper Yuan means our products are cheaper,” says another. “We are trying to take advantage of the depreciation and seek a stronger footing overseas.”

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Source: https://www.bullionvault.com/gold-news/gold-bullion-081420151

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