Kaloti Precious Metals-Morning Market Report-Tuesday, October 25, 2016

Market Daily & Weekly

Note: Indications only, open and closing prices are bids; Data source: Bloomberg; Times as per Dubai

Fundamentals and News

China Gold Demand May Pick Up on Yuan Weakness, Goldman Says

Bullion demand in China likely to pick up near term should yuan depreciate further, drop in property sales extend, Goldman says in report dated Oct. 24.

“The potential drivers of increased Chinese physical buying include purchasing gold as a way to hedge for potential currency depreciation in the face of capital controls, and purchasing gold as a way of diversifying away from the property market,” analysts including JeffreyCurrie and Max Layton write in note

The offshore yuan fell to a record low as Chinese policy makers signaled they are willing to allow greater currency flexibility amid a slump in exports and an advance in the dollar. The exchange rate touched 6.7880 per dollar in New York Monday, the weakest intraday price in data going back to 2010, and was down 0.2 percent from Friday’s close. In Shanghai, the currency fell to 6.7770, the lowest level in six years and past the 6.75 year-end median forecast in a Bloomberg survey.

The Chinese currency has come under increased pressure on signs that investors are taking more money out of the country. Unlike the yuan selloff earlier this year which sparked a global market rout, there’s no sense of panic yet as policy makers maintain a steady exchange rate against other currencies. A gauge of the dollar rose to a seven-month high versus major currencies Monday as traders bet that the Federal Reserve may raise borrowing costs soon.

“The yuan weakness has intensified and capital outflow has intensified,” said Koon Chow, a London-based strategist at Union Bancaire Privee. “The yuan has been off people’s radar for a while.” The recent selloff “could be a source of contagion” to other emerging-market currencies, he said.

The onshore yuan has weakened 4.1 percent this year, the most in Asia. It has declined in all but one session this month as some analysts speculated that the central bank has reduced support following the yuan’s inclusion in the International Monetary Fund’s Special DrawingRights of reserve currencies on Oct. 1.

Capital outflows are showing renewed signs of acceleration. A net $44.7 billion worth of yuan payments left the nation last month, according to data released by the State

Administration of Foreign Exchange’s Friday. That’s the most since the government started publishing the figures in 2010, and compares with August’s outflow of $27.7 billion. Goldman Sachs Group Inc. warned Friday that China’s currency outflows have risen to $500 billion this year.

The yuan weakness largely reflects the strength of the U.S. dollar as traders boosted bets that the Fed may raise the borrowing costs in December, which makes dollar-denominated assets more attractive. The odds of a U.S. interest-rate increase by year-end climbed to 68 percent, from 33 percent two months earlier, according to the Fed fund futures trading.

Data Forthcoming Releases

Courtesy: http://kalotipm.com.sg/kaloti-market-report-25th-october-2016