Gold contract higher but backs away from intraday record
By Claudia Assis and Laura Mandaro , MarketWatch
SAN FRANCISCO (MarketWatch) -- Gold futures swerved in and out positive territory and copper soared Monday as traders digested China's decision to allow its currency to float more freely against the U.S. dollar, a move that drew investment money into riskier assets such as stocks.
Gold for August delivery, the most active contract, recently traded up $1.20 at $1,258.70 an ounce on the Comex division of the New York Mercantile Exchange.
That's a fresh record high for the metal, which closed Friday at $1,258.30 an ounce, the highest settlement since gold futures started trading on Comex in the 1970s.
August gold posted an intraday high of $1,266.50 an ounce earlier. The metal is coming off record closing levels set over the past two trading sessions.
Over the weekend, China's central bank announced plans to allow gradual flexibility in how its currency -- known as both the yuan and the renminbi -- trades against the dollar. See story on China's currency move.
The move boosted optimism about global economic growth as it will pump up Chinese consumers' purchasing power and is likely to help the U.S. economy by making its exports cheaper and thus more competitive on global markets, analysts said.
The decision also calmed lingering concerns that inflation-minded Chinese authorities could overcompensate and raise interest rates too fast, in the process risking a shock to global growth.
Copper for July delivery jumped 12 cents, or 4%, to $3 a pound. Copper prices had been on a downward spiral since closing at $3.16 a pound May 27.
Palladium and platinum, metals also used for industrial purposes, rose 2.6% and 1.3%, respectively, to start the trading week.
"Commodity prices should respond positively to a stronger renminbi, as China is a large net importer of many commodities," said Morgan Stanley analysts Gregory Peters and Jason Draho in a note Monday.
A stronger yuan "should be positive for overall risk appetite, signaling the health of both the domestic Chinese and global economies, which is constructive for commodities," they added.
Even as China's move weighed on gold, a weaker dollar lended some support to prices. The U.S. dollar index (DXY 85.53, -0.17, -0.20%) fell to 85.63 from 85.704 late Friday.
The "Chinese news supports gold on the idea U.S. dollar could continue to weaken," said Darin Newsom, senior analyst at Telvent DTN. See the latest on dealings in the dollar in Currencies.
"However, regardless of the yuan, the trend of the dollar has been down while gold continues to move to new highs on increasing open interest," he said. "This would indicate new buying interest continues to come into the market despite record high prices."
Also likely to affect metals trading this week, investors will be "on the lookout for comments ahead of next weekend's [Group of 20] summit as well as this week's line-up of economic data, which includes EU consumer confidence, manufacturing & service PMI and revised U.S. GDP," James Moore, analyst at TheBullionDesk.com, said in a Monday note.
