Gold price boosted by safety demand
London (Aug 19) Gold prices were higher on the London spot market on Wednesday as the uncertain outlook for the Chinese economy supported further safe-haven demand for a metal that is considered a hedge against risk.
Spot gold was up 0.4 per cent at $US1,122.45 a troy ounce in morning European trade, having hit a four-day high earlier in the session at $US1,124.22 an ounce.
Investors are worried about the health of the Chinese economy after the devaluation of the yuan last week and a string of weak economic data. There is also concern about the timing of an interest rate rise by the US Federal Reserve.
The yellow metal often attracts investors in times of heightened financial, social or political unrest because it is considered a safe store of value and it is seen as an effective way to offset risk.
"Gold seems to be attracting safe-haven buying as concerns about emerging market currencies and broader markets seem to be on the rise," William Adams, head of research at Fastmarkets, said in a note.
Looking ahead, market participants will be watching out for the minutes from July's Federal Open Market Committee meeting later Wednesday, which should provide the dollar with some direction.
For some analysts, the market is likely to interpret the minutes as bearish for gold as a rate hike could come as early as September. The metal has an easier time competing with Treasury bonds and other interest-bearing assets, as an investment, when rates are pinned near zero. If investors react by selling down their gold positions, prices could head lower.
"We believe the minutes will contain relatively large amounts of hawkish overtones as the Fed details what could possibly be their last meeting before the rate liftoff," said Howie Lee, an investment analyst at Phillip Futures, in a client note. "A hawkish set of minutes from the FOMC is likely to send gold prices down south once more, particularly to the level of $US1,100 an ounce."
As gold is priced in dollars, it becomes more expensive for other currency-holders to buy when the dollar appreciates.
Among the other precious metals, spot silver was up 0.5 per cent at $US14.958 an ounce, spot platinum was up 0.3 per cent at $US995.41 an ounce and spot palladium was down 0.1 per cent at 594.85 an ounce, hovering near a three-year low.