Yuan Turbulence and the Relative Effects on Precious Metal

China recently devalued the yuan by close to 1.9%. This devaluation sent ripples through the equity markets, and global markets slumped. This reform by the PBOC (People’s Bank Of China) can have a positive outcome for the Chinese exporters, as they can enjoy pricing benefits over other countries. However, a currency war can’t be discounted. Not only could the move increase exports from China, but it could also curb imports from other countries.

An import cut could result in lower gold demand by China—the world’s biggest gold consumer—and other Asian consumers. The yuan’s devaluation could have an adverse effect on the possibility of the Federal Reserve raising US interest rates.

Equity markets tumbled on Wednesday, August 12, as China devalued the yuan for a second straight day in a three-day slide. Known as a haven commodity, gold rose by ~1.4% and settled at $1,123 per troy ounce on August 12.

Last week, gold saw straight five up days, rising by 1.02% on a five-day trailing basis. Gold reached its peak of $1,124.50 on August 12, its highest point since July 20.

Silver for September expiry rose by ~1.25% on August 12 and settled at $15.476. Platinum and palladium for September expiry also rallied and ended at $998.70 and $616.95, respectively. The chart below gives the price and volume performance of gold futures on COMEX during the last trading month.

Precious metal funds like the iShares Gold Trust ETFs (IAU) and the iShares Silver Trust ETF (SLV) surged during the last week by 2.08% and 3.12%, respectively, on a five-day trailing basis. Mining funds like the SPDR S&P Metals and Mining ETF (XME) and the Global X Silver Miners ETF (SIL) also gained 4.21% and 11.61%, respectively.

Gold mining companies like Alamos Gold (AGI), Gold Fields (GFI), and AngloGold Ashanti (AU) also gained during the last week. These stocks together contribute 9.12% to the Market Vectors Gold Miners ETF (GDX).

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Browse this series on Market Realist:

• Part 2 - Does the Yuan’s Devaluation Mean an Upswing for Gold?
• Part 3 - World Gold Council Reports Global Calls on Gold