Update Thursday–Gold drops sharply on weak Chinese yuan fix

Yesterday in Myra Saefong’s MarketWatch afternoon gold market update:

“I do not believe that the trade wars at present are the dominant issue for gold and the dollar,” Michael Kosares, founder of gold broker USAGOLD, told MarketWatch. “Both, I believe, are still caught up in a syndrome dictated by dovish interest-rate policy across both oceans, while the U.S. continues to raise rates. That could all change in a heartbeat, though, if the inflation rate begins to run consistently higher than interest rates.”

This morning reports have surfaced that China’s central bank is aggressively pursuing its own version of a quantitative easing program. (Read here)  Simultaneously it fixed the yuan top-shelf exchange rate lower signalling it was interested in a weaker yuan against the dollar and other currencies. The combination sent gold reeling overnight in Asian markets – down $14 at one point.  Gold has staged a minor recovery in early U.S. trading and is now down $10 at $1217.  Increasingly, currency traders are suggesting that the Fed may be forced to act.  In an editorial this morning, the Financial Times warns “The U.S. central bank must be prepared to halt or reverse rates. . . if financial stability is threatened.”

 

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