China Devaluation Sparks Gold Buying Everywhere -- Except China

Gold's Appeal in China Is Waning

After last week’s surprise yuan devaluation investors everywhere were eager to buy gold as a haven. Everywhere, that is, except in China.

Huaan Yifu Gold ETF, the bullion exchange-traded product with the biggest volume in China over the past month, posted a third straight weekly outflow as of Aug. 14. The withdrawal came even as global ETPs posted the first increase of assets since late June. Holdings in the Chinese fund are heading for the first monthly loss since April.

Gold prices in New York have climbed about 1 percent since Aug. 10, the day before China carried out its first major devaluation of the yuan since 1994 in a bid to promote domestic economic growth. While the currency move spurred some investors to seek shelter from volatility across equity and commodity markets, it also shored up confidence among Chinese buyers, dimming the haven appeal of precious metals in the nation.

“With expectations of growth to remain on track and positive market sentiments, the need to buy gold as a safe haven should slowly ebb” in China, Barnabas Gan, an economist at Oversea-Chinese Banking Corp. in Singapore, said in an e-mail. Gan was the most accurate forecaster for precious metals last quarter based on rankings compiled by Bloomberg.

Newly restored optimism threatens to exacerbate a slowdown in Chinese demand, which had already cut the nation’s gold shipments from Hong Kong in June to the lowest in almost a year. Adding to the woes for bullion bulls, the yuan drop will also mean that the metal, priced in dollars, will become more expensive for the nation to import. China rivals India as the world’s biggest consumer.

“Far from expecting gold demand to be bolstered in China, the yuan devaluation might actually work against gold consumption,” Howie Lee, an investment analyst at Phillip Futures Pte in Singapore, said in an e-mail. “It looks set to be another sorry chapter for gold demand in China -- a story that we are seemingly getting too accustomed to.”

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