Why is the gold price rising?August 21, 2015 3:17 pm
Why is the gold price rising? – Gold Analysis
Why is the gold price rising? Before delving straight into the answer – let’s look at the numbers.
As of writing this article, the LBMA afternoon Gold Fix has just been announced at £737.070, $1156.50, €1023.768 respectively (which by the by we tweet everyday – for those of you interested!). The price in sterling on the 6th August was £694.566 just over two weeks ago. This equates to a range of £42.514 during this trading period, meaning that the price of gold has risen 6.12% in a 15 day period from the AM fix on the 6th to the PM fix today. That is notable movement for the yellow metal. The last time the price was this high was over a month ago on the 15th July where it then took quite a tumble – good news came out about Greece amongst other things.
So after looking at the numbers, what news has come out that can answer: ‘Why is the gold price rising?’
Chinese Yuan Devaluation and What it means
The primary reason for golds sudden resurgence is China’s devaluation of its currency the Yuan, with the biggest single devaluation in 20 years. After a number of financial reports published that all pointed to China’s growth slowing down drastically, with exports in June falling a massive 8.3% alone, the Chinese central bank made the decision to devalue the Yuan, making exports significantly cheaper. For gold and other commodities, the lower usage by world’s largest consumer of commodities combined with the fall in growth, caused a big slide throughout June to August. With the shock three day devaluation on the 11th August, ending on the 13th August, causing a 4.4% fall against the dollar has meant an increase to the gold price. The PM gold fix on the 10th was £706.511, $1097.00 and €999.863 and by the 13th (the final day of Yuan devaluation), the gold PM gold fix was £716.646, $1116.75 and €1004.543.
The Yuan announcements caused huge ripples in the Asian financial markets, with the Nikkei, amongst others falling considerably until Chinese assurances of no further devaluations in the pipeline. In Europe and the States, naturally the devaluation caused spikes in the FTSE 100 and the NYSE but these have proved to be short lived, as the realisation of what the consequences of a cheaper Yuan will mean in the long run for the respective economies of the UK and US. In particular the US will eye the devaluation of the Yuan, as nothing more than a suppressive tool in their already under-performing inflation of 1.3%, as the FED have not been quiet to point out that a minimum of a 2% target will have to be achieved until they can commit to an interest rates rise. The US’ CPI data also hasn’t helped proceedings, as the consumer price index has expressed stagnation, showing year on year the exact same figure of 1.8% from last July to now with Month on Month from June to July a negative reading of 0.1%, down from 0.3% in June. Not good news for the FED who are banking on (no pun intended), good statistics to be released in the coming months to support a rates rise towards the end of the year.
Verdict:- In short, why is the gold price rising? China. The shock devaluation following poor data really caused ripples throughout the markets. This coupled with worse-than-expected results in US CPI data, has meant the gold price has had a spring in its step and causing greater headaches for Yellen and the FED going forward.
Article by Michael Cooper