Investing.com - Gold prices held near six-year highs Tuesday as words and action from People’s Bank of China reassured markets that it wouldn't let the yuan fall sharply.
Spot gold gained $1.72, or 0.1%, to $1,465.61 by 9:12 AM ET (13:12 GMT), pulling back from the intraday high of $1,474.99, its most expensive level since May 2013.
On the back of the U.S. labeling China a "currency manipulator" after the central bank allowed the yuan to fall below 7 to the dollar on Monday, the PBoC announced overnight a firmer-than-expected yuan fixing and issued a strongly-worded statement restating its commitment to keeping the currency stable "at an equilibrium and adaptive level" within the framework of its managed float regime.
“Markets have reacted to China's currency fixing by exiting safe-haven positions,” ING strategist Francesco Pesole said in a note.
While recommending to keep an eye on the dollar during a speech from the Federal Reserve’s most dovish member, James Bullard, at 1:05 PM ET (17:05 GMT), he said that he expects the “PBoC fixing to remain the key driver of market sentiment this week."
Analysts voiced concern that the stabilization may not last long, however.
Mohamed El-Erian, chief economist at Allianz, said that the PBoC's action seemed to point to more of “a ceasefire at best, not a resolution".
Goldman Sachs chief economist Jan Hatzius said that he no longer expects the U.S. and China to reach a trade deal ahead of the American presidential election in November 2020.
U.S. President Trump’s decision to impose a 10% tariff on $300 billion of Chinese imports from Sept. 1, “suggests that both sides in the trade conflict are taking a harder line, reducing the odds of a resolution in the near term,” Hatzius wrote in a note.
He also said he now sees a 75% chance of a rate cut by the Fed in September followed by 50% odds of an additional cut in October, coming after a quarter-point reduction last week. Hatzius previously predicted that the Fed would only cut twice this year.
Market conviction is much higher with a 25 basis point reduction in September fully priced in with odds for an additional cut in October above 75%.
Lower interest rates reduce the opportunity cost of holding non-yielding bullion. For over $1 trillion of bonds now yielding negative interest rates, any further move downwards merely increases gold's relative attractiveness. German 10-year government hit a new record low of -0.54% earlier Tuesday, despite the stabilization in equity and foreign exchange markets.
In other metals trading, silver futures gained 0.2% to $16.427 a troy ounce by 9:15 AM ET (13:15 GMT).
Palladium futures rose 1.1% to $1,432.10 an ounce, while sister metal platinum dropped 0.4% to $854.50.
In base metals, copper traded up 0.9% to $2.568 a pound.
-- Reuters contributed to this report.