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Last Updated : Aug 12, 2015 11:59 AM IST | Source: Reuters

Gold holds near 3-week top as weaker yuan hits equities

The move hit global equities, prompting some investors to seek safe-haven assets such as gold which has now recovered around 3 percent from a 5-1/2-year low of USD 1,077 during a late July rout.


Gold gained for a fifth session in a row on Wednesday to trade near a three-week high, benefiting from weaker equities after China's devaluation of the yuan stoked fears of a currency war.



China's surprise 2 percent devaluation of the yuan on Tuesday, seen as a move to bolster a flagging economy, was condemned by US lawmakers as a grab for an unfair export advantage.



The move hit global equities, prompting some investors to seek safe-haven assets such as gold which has now recovered around 3 percent from a 5-1/2-year low of USD 1,077 during a late July rout.

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Asian stocks and emerging currencies tumbled on Wednesday after Beijing allowed the yuan to fall sharply for a second day.



Spot gold was up 0.2 percent at USD 1,110.80 an ounce by 0231 GMT, after peaking at USD 1,119 on Tuesday, its highest since July 20.



"The only reason gold may benefit will be purely from a safe-haven perspective," said OCBC Bank analyst Barnabas Gan.



If China's action indeed spurs a currency war, every currency would depreciate and dollar strength continue, said Gan, which would eventually weaken gold.



Gan also said the weaker yuan would make it more expensive for China, the world's top consumer, to import gold, potentially extending weak Chinese demand that has been the case since 2014.



US gold for December delivery gained 0.2 percent to USD 1,109.50 an ounce.



China's currency devaluation is unlikely to distract the US Federal Reserve from a domestic economy that appears increasingly ready for higher interest rates, according to economists and Fed watchers.



That could limit gold's upside potential. A looming hike in US interest rates had weighed on non-interest yielding bullion.



"We are still looking for a rate hike this year despite all that's happened," said Gan.



Spot silver dropped 0.3 percent to USD 15.23 an ounce after hitting a one-month high on Tuesday.

Platinum slipped 0.2 percent to USD 982.20 an ounce, having touched a three-week top overnight and palladium eased 0.3 percent to USD 599.90.



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First Published on Aug 12, 2015 08:55 am
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