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How Chinese economy affects The Gold Prices In USA?

Gold has been the part of  Chinese bygone times since Han Dynasty (206BC – 220AD) but demand for the shiny metal clenched steadily with the arrival of Buddhism. Worshipers made Gold offerings, built golden temples and statues of Buddha.

Nowadays China has become one of the largest consumers of gold jewelry because it is believed socially that sound financial position and better fortune is estimated in terms of gold holdings.

World Gold Council reports that 82% Chinese consider it strong financial asset as well fashion statement. It is also observed that majority purchases 24 carat gold from investment point of view.

 

China devaluing Currency Perturbed Gold Prices

The Yuan does not trade freely like dollar. China has kept a close eye on  the value of the yuan and has  linked it to the value of the U.S. dollar – regardless of how the Yuan actually performed in the market. China has announced 2% devaluation of its currency and changed the way it is traded. Now, policymakers are of the view that this decision has shocked the financial markets and will affect the Gold prices in USA and other markets in future.

 

Chinese Motivation behind Devaluation

The Yuan is depreciated so the dollar becomes more high-priced. When the value of the dollar increases, U.S. exports become more expensive. Since U.S. goods are now more expensive, other countries import less and the rate of U.S. exports decreases. For China, the reverse happens – their exports are cheaper (especially compared to the U.S.) so their number of exports increases. This conceptions is behind the  devaluation.
How does this impact Gold Prices in USA?

U.S. dollar can directly affect gold prices; when the dollar increases, gold prices go down. On the other hand, gold is a safe asset for investors. So the price went down and there was an increase in demand from investors looking for some stability at the time of fluctuating currencies. When the devaluation was announced, it drove the price below $1,100 per ounce immediately after that. Gold prices in USA have increased to a three-week high of around $ 1309 per ounce since then.

 

China’s Big Eyes on Gold

China has a great demand for gold. It is observed for the last few years that China is accumulating gold because it is a safe investment and secondly China wants to diversify its reserves.The Chinese central bank has increased its gold reserves gold reserves by 74% for the last 12 months. The increase in the gold reserves by China has put pressure on the gold prices in USA.

 

Demand and Supply Theory

The Gold Prices in USA generally leans on the demand and supply theory. As mentioned above Chinese interest in gold is increasing so it’s driving its price. The consumer demand in 2011 was 200 tonnes and by the end of the year it reached up to 209 tonnes. The 12% demand from all the 100 % gold demand is attributed to the industrial usage, where it is used in manufacturing of stents and GPS units. These circumstances are also a factory rise in Gold Prices in USA and other countries of the world.

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About Sumera Sohail