Gold price surges to 9-week high, as investors seek safety from China sell-off

New York (Jan 7)  Gold surged on Thursday to a nine-week high, as investors piled into the safe-haven asset after the People's Bank of China surprisingly adjusted its fix on the yuan, causing equities to plunge and triggering the second halt of trading in the opening week of the year.

On the Comex division of the New York Mercantile Exchange, gold for February delivery traded in a broad range between $1,091.10 and $1,107.40 an ounce, before settling at $1,108.80, up 16.80 or 1.54% on the session. Gold posted its fifth consecutive winning session and its seventh over the last 10 trading days. For the majority of Thursday's session, gold traded above $1,100 an ounce, a level previously not seen since early-November. Since dipping to a fresh six-year low at the start of December, the precious metal has rallied sharply, rebounding by nearly 5%.

Gold likely gained support at $1,046.20, the low from December 3 and was met with resistance at $1,134.70, the high from November 3.

In overnight trading, China's benchmark Shanghai Composite Index plummeted 7% within a half-hour of the start of trading, prompting its second circuit breaker in the span of four days. Earlier, the PBOC set the midpoint of the yuan at 6.5646 against the dollar, 0.51% lower than the previous day's rate, representing the sharpest fall in the daily fixing since the currency's massive depreciation in mid-August. In Tuesday's session, the PBOC set the yuan's midpoint at 6.5314, its lowest level since February, 2011.

On Tuesday morning, the PBOC injected 130 billion yuan into the nation's open-market operations, its most since September, after weak manufacturing data last month sparked fresh concerns of a further slowdown in the world's second-largest economy. Then on Wednesday, Markit said China's Caixin services PMI index for December fell to a 17-month low at 50.2, its second-lowest level on record. Some experts view the latest intervention by the Chinese central bank as a desperate move to jumpstart its flagging economy by bolstering exports. At Thursday's low of 6.60007 versus the dollar, the yuan fell to its lowest level against the greenback in five years.

The latest crash in Chinese equities mirrors a sell-off from late-August when the PBOC devalued the yuan by its highest amount in more than two decades, shocking equity markets worldwide. On August 11, the PBOC changed its mechanism for pricing the yuan's midpoint by simply basing it on the prior day's close. Previously, major state-owned banks nationwide submitted a CNY/USD exchange rate to the PBOC each morning, which calculated an average to determine the midpoint. Over the course of a trading day, the PBOC intervenes to prevent the exchange rate from drifting 2% above or below the midpoint. China's Foreign Exchange Trading System (CFETS) said Thursday the new midpoint pricing system has achieved its anticipated result and will be more market-oriented in the future, Reuters reported.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell by more than 0.55% to an intraday low of 98.71. The index still remains near 12-month highs from December when it eclipsed 100.00.

Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for March delivery soared 0.379 or 2.71% to 14.365 an ounce.

Copper for March delivery plunged 0.066 or 3.17% to close at 2.023 a pound. At one point in Thursday's session, copper fell to 1.991 a pound, its lowest level since 2009. China is the world's largest consumer of copper, accounting for more than 40% of the world's total consumption.