LAUNCESTON, Australia, Aug 17 (Reuters) – Gold investors are trying to work out whether the yuan’s depreciation and the recent turmoil in Chinese equity markets is good, bad or indifferent for demand for the precious metal in the world’s biggest buyer.
It’s possible to construct plausible-sounding arguments why the recent drama in China’s financial markets could be both bullish and bearish for gold.
At the heart of most of the arguments is a view on how Chinese consumers will respond to the recent developments but it seems this is largely guesswork on the part of analysts, as there are few precedents to serve as a guide to future behaviour.
One big question is whether the yuan’s sudden 3 percent decline against the U.S. dollar last week and the swings in equity valuations are likely to be important drivers of Chinese gold demand, or whether other factors with a lower media profile are at work.
Looking at the yuan depreciation first, and the important thing seems to be that the authorities are signalling the drop last week was a one-off move, not part of any sustained weakening.
Beijing may be trying to assuage fears of a global currency war, but taking the assurances at face value means that the yuan price of gold will have seen a one-off increase of about 6 percent.
The positive from this is that a 6 percent rise isn’t enough by itself to crimp demand for the yellow metal, especially since Chinese prices are still about 13 percent below the high point so far in 2015 reached in early February.
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