Gold prices witnessed a noteworthy shift in response to currency actions, with the Japanese Yen surging and the Chinese Yuan rebounding from a 16-year low. This development comes as central banks in Tokyo and Beijing make efforts to protect their currencies in the face of rising concerns about inflation and instability, as reported by Atsuko Whitehouse at BullionVault.
In the midst of these currency maneuvers, gold prices in US Dollars experienced a 0.6% surge, reaching $1930 per Troy ounce, effectively recovering half of last week’s $20 drop from one-month highs.
However, the impact on gold was relatively muted in British Pounds and Euros, as the Dollar index, which measures the greenback’s value against major currencies, saw its most significant drop since the end of August, following statements from the central banks of Japan and China.
China, the world’s second-largest economy, managed to exit deflation last month, with a modest 0.1% annual increase in consumer prices. On the other hand, Japan, the third-largest national economy globally, has been grappling with consumer-price inflation above the central bank’s 2% target for 16 consecutive months as of July, leading to a 2.3% depreciation of the Yen against the Dollar in August and an additional 1.6% loss last week.
Kazuo Ueda, the Governor of the Bank of Japan, expressed their willingness to explore various options if inflation continues to rise alongside wage growth. Ueda’s recent comments indicate a potential shift in the monetary policy approach, with the Bank of Japan having maintained an overnight interest rate below zero since the beginning of 2016.
Japan’s consumer price inflation, which reached 3.3% year-on-year in July, translated into a sustained decline in real wages for the 16th consecutive month, according to government data released on Friday.
The speculation surrounding monetary tightening led to a surge in ten-year Japanese government bond yields, reaching 0.705% per annum, the highest level seen since 2013. Simultaneously, the Japanese Yen appreciated by as much as 1% against the Dollar, resulting in a 1.2% drop in gold prices when denominated in Yen, despite the recent record highs.
In contrast, gold prices on the Shanghai Gold Exchange reached another all-time high of ¥467.92 per gram before the Yuan’s recovery from a 16-year low. The People’s Bank of China raised its daily ‘fixing’ level for the currency’s FX rate and issued a warning to speculators against betting against the CNY.
The PBOC emphasized the importance of maintaining a stable foreign exchange market and discouraged speculative trading that could disrupt market orders.
Hideo Kumano, an executive economist at Dai-Ichi Life Research Institute and a former BOJ official, suggested that the efforts to bolster the Yen would likely be appreciated by the Japanese government, given the recent decline of the Yen to within ¥3 of a 30-year low against the Dollar, prompting Treasury intervention in currency markets.
Meanwhile, the onshore Yuan saw a substantial 1% appreciation against the Dollar, marking the most significant single-day rise since March, with a rate exceeding ¥7.30 per Dollar, which was last witnessed in late 2022.
China’s wholesale bullion market continued to maintain a historic premium over London quotes, offering a $70 incentive per Troy ounce for new imports. This premium, the highest since the launch of Shanghai’s daily price benchmarking in spring 2016, is more than seven times the typical level.
Local wholesale dealers anticipate that Beijing’s economic support measures will boost physical gold demand. However, it’s worth noting that the People’s Bank of China, despite increasing its gold holdings this year to a record of 2,165 tons, has concurrently reduced the issuance of gold import licenses to local banks. This move aims to curb foreign currency outflows and aligns with BullionVault’s initial observation in July when the Yuan’s decline on the FX markets began.
In the Eurozone, gold prices edged up by 0.2%, reaching €1796 per ounce, ahead of the European Central Bank’s policy vote. In the United Kingdom, gold prices in Pounds per ounce experienced a slight decline, hovering around £1538 as the Pound stabilized after reaching three-month lows following Bank of England Governor Andrew Bailey’s remarks about the potential end to the central bank’s rate increases.
Reflecting on the global economic situation, former Federal Reserve chief Janet Yellen, now serving as the US Treasury Secretary, expressed optimism about the trajectory of the US economy, particularly in terms of reducing consumer price inflation while avoiding a recession. Her comments came ahead of the release of US consumer price index data later this week.