Gold hits 3-week high as investors assess China currency move

The move hit global equities, prompting some investors to seek safe-haven assets such as gold which has now recovered around 3 percent from a 5-1/2-year low of $1,077 during a late July rout. The currency fared worse in global trade, touching 6.5888 yuan per dollar, its lowest since early 2011.

Also, the monopoly role of the US dollar that has driven markets since 1945.

Although China has made a significant increase in its gold reserves, it is still only a small portion of its total foreign reserves.

When the rate hike happens there could be initial panic selling in gold on the prospects of further hikes and all talks of real rates moving higher.

Australian Dollar gold is now over A$1520 an ounce.

“It’s a game changer”, he said.

Data released on Tuesday showed U.S. nonfarm productivity rebounded in the second quarter, but a weak underlying trend suggested inflation could pick up more quickly than economists thought.U.S. Treasury yields dropped to three-month lows, keeping the dollar’s gains in check, with the benchmark 10-year note yield at 2.099 percent in Asian trading, compared to its U.S. close of 2.139 percent.

China is complicating Janet Yellen’s life.

“We probably need to see how it settles overnight”.

Analyst William Lee said the ongoing volatility sparked by the devaluation and possible similar decisions in the future could be a factor in delaying the rate rise until December. The issue here is that contrary to expectations China has bought just too little.

“The most relevant impact on the US economy would be additional deflationary forces which would further the Fed’s goal of achieving its inflation target”. The Dow alone has plummeted about 400 points since Monday’s close as investors fear the weaker yuan will make goods sold by companies like Apple and Coach less attractive to Chinese consumers. “However, we are sceptical that the People’s Bank of China’s announcement is truly a game-changer”.

Markets have been focused on China, where the central bank devalued the currency amid a slowing economy. Investors Tuesday saw a 46 percent chance they will raise rates at that gathering, based on pricing of federal funds futures contracts, down from 54 percent on Friday.

Nomura researchers described the devaluation as a “potentially healthy, if only very incremental” source of reflationary impetus for China, rather than a new source of global deflation.

In fall 2014 and spring 2015, gold was driven by the broad commodity sell-off, especially the drastic plunge of oil prices which was fueled by the stronger dollar, along with concerns over China’s slowdown.