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Gold is finding its legs, even against CNY
Ole Hansen
Head of Commodity Strategy
Summary: Today's Asian session saw USDCNY near the crucial 7.00 level, with the currency's positive correlation to gold now fading in light of the equities rout and the consequent safe haven bid for the yellow metal.
Today's Asian session saw the Chinese yuan touch a 10-year low at 6.9682 versus USD, thereby closing in on the key $7 level.
Gold’s weak performance was until recently tied strongly to the direction of the yuan, which has fallen by 7% so far this year. That correlation is now fading with the rout in equity markets and lower bond yields attracting a safe haven bid. This bid, combined with continued short-covering, has been strong enough to mitigate the headwind from the stronger dollar against most currencies, with JPY being the exception.
Gold’s weak performance was until recently tied strongly to the direction of the yuan, which has fallen by 7% so far this year. That correlation is now fading with the rout in equity markets and lower bond yields attracting a safe haven bid. This bid, combined with continued short-covering, has been strong enough to mitigate the headwind from the stronger dollar against most currencies, with JPY being the exception.
Given gold’s relative strong performance so far this week (+0.8%) despite the stronger dollar (+0.9%) it is likely that resistance at $1,240/oz could be challenged and broken very soon. Not least considering a potential nervous session ahead in stocks following disappointing results from Amazon and Alphabet yesterday.