(USAGOLD – 5-16-2019) – We can’t be certain at this juncture, but it looks like this morning’s sell-off in gold is related to weakness in China’s yuan. An article in the South China Morning Post today focuses on the 2% drop in China’s currency over the past two days* and states that a “further slide of the yuan below 7.00 to the dollar could counter a new 25 per cent tariff on US$300 billion of Chinese goods exported to the US.” It then quotes Capital Economics’ senior China economist Julian Evans-Pritchard as saying that “if tariffs were ultimately implemented on all US imports from China, Beijing would have less to gain from supporting the yuan than allowing the market to weaken it.”
Along these lines, Deutsche Bank is out with a report this morning (featured at ZeroHedge) saying that “Asia is the region we expect to suffer most from the renewed global headwinds. We argue that policymakers in China are now going to be more accepting of USD/CNY appreciation through 7 . . .” That kind of thinking, we believe, is what probably drove the dollar sharply higher this morning and gold sharply lower. If something else surfaces, we will post it.
* The 2% drop SCMP cites appears closer to 2.5%, but occurring since May 6 – not the past two days.
Chart courtesy of TradingEconomics.com