On Tuesday gold added to recent gains above the psychologically important $1,100 an ounce level after China’s currency move surprised markets.
Futures contracts in New York with December delivery dates were exchanging hands for $1,108.10 an ounce in after hours trade on Tuesday after ending the regular session up $3.60 at $1,107.70, a three week high.
The People’s Bank of China jolted markets overnight after lowering the renminbi’s daily reference rate against the US dollar by 1.8%, the largest such adjustment in its history.
It was widely interpreted as a defensive move amid an economic slowdown in the world’s second largest economy and top commodities consumer.
Shares of mining companies and industrial metal prices fell sharply in response as the devaluation makes commodities priced in USD more expensive and could dampen demand from China even further.
Gold benefitted thanks to its status as a safe haven during economic turmoil and a storer of wealth.
Richard Perry, market analyst at Hantec Markets was quoted by MarketWatch as saying “there are suggestions that a Chinese devaluation of the yuan will mean that Chinese investors who have suffered from the stock market blowout and now fearful of further yuan depreciation/devaluation, will opt for gold.”
“Gold is benefiting from fears that this is a new round of ‘currency war,'” Macquarie analyst Matthew Turner was quoted by Reuters:
“Gold’s best moment this year came in the first few months when we saw various FX swings, lots of different central banks cutting interest rates or intervening in their monetary policy, so probably there is some element of that which has helped the rally from Monday continue a bit,” Turner said.