Gold extends recovery, as dollar dips and yuan rebounds
London — Gold extended its recovery on Monday, touching the strongest in nearly two weeks as the dollar weakened, the Chinese yuan rebounded and some investors reversed their bearish gold bets.
Spot gold was up 0.7% at $1,262.86 an ounce by 9.45am GMT, its highest since June 26.
US gold futures for August delivery rose 0.7% to $1,264.20 an ounce.
There has been a strong correlation recently between the yuan and gold, analysts said.
"I think most likely the yuan will remain volatile but [I don’t expect …] aggressive weakness, so that means the only thing that is driving gold at the moment is the dollar, which is somewhat weaker," said Georgette Boele, commodity strategist at ABN AMRO in Amsterdam.
The yuan rose 0.5% in offshore markets to 6.6292 against the dollar, further away from the lows hit in June — its biggest monthly fall — while the dollar index weakened.
A weaker dollar makes greenback-denominated gold cheaper for holders of other currencies.
OCBC analyst Barnabas Gan said some investors had bought gold to cover their short positions.
"With the ongoing US-Sino trade tension, the resignation of [UK’s Brexit secretary] David Davis will likely be a side-show, though it might raise some concerns among market-watchers depending on how the overall Brexit issue progresses," Gan said.
Davis said on Monday he had resigned to try to stop Prime Minister Theresa May from handing too much power to the European Union (EU), increasing the pressure on a UK leader struggling to overcome Brexit divisions.
It was unclear whether a rebound in spot gold would continue after it hit a seven-month low of $1,237.32 last week, Boele said.
"This could already be the bottoming out, but I think you will still get another test lower, because we expect a recovery in the dollar and higher yields for the coming quarter."
Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.15% to 802.24 tons on Friday.
Among other precious metals, silver rose 1.2% to $16.18 an ounce and platinum gained 2% to $857.50 an ounce. Both the metals hit their highest since June 27 during the session.
Palladium gained 1.1% to $963.10 an ounce, its highest since June 21.