China’s decision to gradually switch to a move flexible exchange rate of its national currency yuan has had a limited impact on gold prices, which have set yet another record high of US$1,266/oz today before sliding to US$1,257/oz as safe haven demand softened amid a rally in stock markets.
The yellow metal rose despite solid gains in equity markets, which were bolstered by China’s announcement. It is yet unclear what effect the gradual loosening up of China’s exchange rate policy, which is expected to lead to an appreciation of the yuan and lower exports from China, is going to have on commodity prices. The move is believed to have been triggered by an increase in the inflation rate, which has already reached the government’s annual target of 3%, and the high growth rate, suggesting an overheating economy.
China has implemented a series of monetary policy tightening measures this year to curb lending and contain inflation.
Safe haven buying has been the main driver behind the rising gold prices this and last month, which saw the yellow metal set new all time highs in US dollar terms. Equity and currency markets were volatile due to the renewed concerns over the European debt crisis, uncertainty over the UK’s budget deficit and the impact of the government’s massive spending cuts as well as the ongoing oil spill in the Gulf of Mexico, which has nearly halved the share price of FTSE 100 heavyweighs BP (LON:BP).
Silver and platinum also were on the rise today, advancing to US$19.30/oz and US$1,603/oz respectively.
Major mining stocks were on the rise today. Platinum miner Lonmin (LON:LMI) led the way with a 3.2% climb. Silver miner Fresnillo (LON:FRES) and gold producer Randgold Resources (LON:RRS) added 2.3% and 1% respectively.
Specialty chemicals firm Johnson Matthey (LON:JMAT) advanced 1.5%.
Aquarius Platinum (LON:AQP) led the midcaps with a 4.5% gain. Silver producer Hochschild Mining (LON:HOC) posted a marginal gain, while gold miner Petropavlovsk (LON:POG) rallied 3.1%.
Brazil focused gold miner Horizonte Minerals (AIM: HZM) and Fiji focused gold miner Vatukoula Gold Mines (AIM: VGM) advanced 5.7% and 5% respectively. Turkey focused gold miner Ariana Resources (AIM: AAU) slipped 5.2%.