PRICED IN REMNINBI GOLD GAINS & COMMODITIES FALL

Chart illustrating Gold priced in offshore  Remninbi Courtesy  Ole Hansen Saxo Bank

Gold in offshore Chinese Renminbi

Ole Hansen  Head of Commodity Strategy Saxo Bank “Is Gold Getting Back Its Moxie
“What a difference one announcement makes, especially when that announcement comes from China and it involves its currency which has been very steady for a long time against the dollar while many other currencies have weakened.”
Commodities recovered a bit on Monday only to be struck down in flames on Tuesday when the Peoples Bank of China announced its new fixing mechanism which essentially opens the door for a continued devaluation. The fact that the weakening of the currency has continued today has left the market with the unpleasant guessing game of how far they are prepared to let it go. Our FX Strategist John Hardy is looking at a potential 10% devaluation before the PBoC halts the slide.

 

Commodities most affected by China demand

Two day commodity performances

Chart Courtesy Saxo Bank

The previous Goldwatcher posting illustrated emerging market currencies in freefall.   4.5%  Remninbi adjustment in two days isn’t free fall Remninbi  but loss is significant. Short covering  rally is likely to support the gold price.

 John Hardy Head of FX Strategy at Saxo Bank writes: 

“I suspect the move will stop as quickly as it began at some unknowable point in the very near future (perhaps 6.80 area in USDCNY where the rate was fixed during the global financial crisis and representing approximately a 10% move?) and then the PBoC will try to make things as boring as possible.”