Gold price edges up on safety demand

Sydney-Australia (Aug 17)  Gold prices edged higher on the London spot market on Monday, as perceived risk around China's devaluation of the yuan continues to prompt safe-haven buying.

Spot gold prices are trading up 0.3 per cent at $US1,117.78 a troy ounce in morning European trade.

The People's Bank of China devalued the yuan for three days in a row last week, triggering demand from investors seeking a hedge against risk and supported prices. The yellow metal is typically seen as a safe store of value in times of heightened economic risk.

"The more recent price recovery...was primarily due to short-covering in the gold futures market, triggered by turbulence in the Chinese [yuan] and broadening concerns about the Chinese economy," Carsten Menke, a commodities research analyst at Julius Baer, said in a note.

Additionally, the dollar was lower against a basket of currencies, including sterling, the yen and the yuan, which was good news for gold. The metal is a dollar-denominated commodity and becomes cheaper for other currency-holders to buy when the greenback gains. This tends to lead to demand spiking and prices rising.

Looking ahead, the market is split over where prices will go. Some, like Mr Menke, see prices trending lower on the back of "sound growth, higher interest rates and muted inflation."

Others, however, are slightly more bullish on its prospects and see safe-haven demand continuing.

"Expect gold prices to stay mildly elevated in the near-term," said Howie Lee, an investment analyst at Phillip Futures, in a note.

All the precious metals were up at the start of the week. Spot silver was up 0.4 per cent at $US15.280 an ounce, spot platinum was up 0.7 per cent at $US995.41 an ounce and spot palladium was up 0.2 per cent at $US616.25 an ounce.