Gold held down by yuan, yields

The tailwind from industrial metals has allowed both silver and platinum to recover both in real terms and relatively against gold. The gold-silver ratio has fallen to a three-week low, and is now below 83 from a 10-year high above 85. Platinum, meanwhile, has outperformed gold by more than $50/oz since July 2 and is currently trading at $370/oz, a six-month low. 

With silver and platinum showing signs of life, the lack of movement in gold speaks volumes about its continued attachment to the Chinese yuan, and about the renewed rise in bond yields to a certain extent as well.

While the dollar has shown some gold-supportive signs of topping out over the past week, not least against the euro, the yuan remains weak. In fact, today saw the onshore yuan decline for a third session after the People's Bank of China set the daily fixing at 6.8571, the weakest level since August 24. This could indicate that the PBoC, instead of having drawn a line in the sand, is only managing the movements in order to avoid a sharp decline. 

In addition, the latest run up in US bond yields, both notional and real, ahead of today’s Federal Open Market Committee meeting has also weighed on sentiment. The rise back above 3% in 10-year notes and the lack of movement in inflation expectations (breakeven) allowed the 10-year real yield to reach a seven-year high at 0.95% earlier this week.

With the market putting the risk of a third 2018 rate hike close to 100%, the focus will instead be on the forward guidance from the FOMC with regard to future rate hike expectations.