In China, a rising price could discourage jewelry buyers, but encourage
gold investors. Many Chinese consumers hoarded gold jewelry as the price
rose to its all-time high of $1,902 an ounce on Sept. 9, 2011. Since
then the price of gold and other commodities have fallen as China’s
economy has slowed and signs of a U.S. recovery have prompted
investments in equities.
HONG KONG—China’s devaluation of the yuan rattled stock markets, triggered fears of a currency war and battered prices of commodities from crude oil to copper. But after a drop in Asian trade Tuesday, the price of gold is rising.
Worries
that a lower yuan would reduce buying in China—one of the largest
consumers of gold globally—drove the price below a psychological
threshold of $1,100 a troy ounce immediately after Tuesday’s
devaluation. It has since recovered to a three-week high of around
$1,116. Prompting the gains: gold’s status as a store of value during
uncertain times.
“It is all about how equities are not doing so
well and talk of a currency war that has prompted the move to gold’s
safe-haven demand,” said Barnabas Gan, Singapore-based economist with OCBC Bank.
The yuan’s fall triggered losses in currencies across Asia.
By late morning Wednesday, the Indonesian rupiah and Malaysian ringgit
had fallen 1.4% and 0.8%, respectively, against the U.S. dollar, to
levels not seen since the Asian financial crisis of the late 1990s. The Philippine peso fell 0.3% to trade at 46.180 to the dollar, a five-year low.
Shares
across Asia deepened their slumps, following losses in currency
markets. South Korea’s Kospi was down 1.1%, the Nikkei Stock Average
1.2% and the Hang Seng
Index 1.1%.
If the lower yuan sparks a currency war, gold could sustain its upward momentum, according to Macquarie
: “After all it was similar FX gyrations in January that saw gold post its high of the year of over $1,300/ounce.”
In China, a rising price could discourage jewelry buyers, but encourage
gold investors. Many Chinese consumers hoarded gold jewelry as the price
rose to its all-time high of $1,902 an ounce on Sept. 9, 2011. Since
then the price of gold and other commodities have fallen as China’s
economy has slowed and signs of a U.S. recovery have prompted
investments in equities.
“What will be interesting to see is whether gold sustains this move,” said Ross Norman, chief executive officer of Sharps Pixley Ltd, a London-based gold broker.
Some
of the move upward has been prompted by short-covering, he said. Gold
fell nearly 1% from the opening price to a low of $1,094.08 an ounce
after the devaluation Tuesday, but later settled at $1,108.40, 0.4%
above the open. In late trade Wednesday, Spot gold was up around 0.8% in
late Asia trade on Wednesday at $1,117.61 per ounce.
A
longer-term cloud over gold is the prospect of an interest-rate increase
by the U.S. Federal Reserve this year. That would boost the dollar,
which tends to trade in the opposite direction of gold prices. But Mr.
Norman said a big impact is unlikely, as a rate increase—“probably the
most telegraphed event in advance”—has largely been factored in.
Once
a short-term interest-rate blip is out of the way, gold could rebound,
analysts say. Gold demand also usually peaks in India and China toward
the end of the year, which could provide a lift for some time.
Write to Biman Mukherji at biman.mukherji@wsj.com
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