NEW YORK (TheStreet ) -- Gold prices climbed to another record Monday after China announced it would let its currency rise in value, but the precious metal was struggling to sustain its high level.
Gold for August delivery was currently slipping 60 cents to $1,257.40 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Monday has traded as high as $1,266.50 and as low as $1,255.40. The U.S. dollar index was slipping 0.15% to $85.57 while the euro was adding 0.09% to $1.24 against the dollar. The spot gold price Monday was down 60 cents, according to Kitco's gold index.
Risk appetite improved Monday as investors cheered a stronger yuan and traders were tentatively selling gold for stocks.
However, many analysts believe a stronger yuan is also good news for gold prices over the long-term as the move will improve China's purchasing power. The yuan was rising 0.45% against the dollar and the currency could appreciate by 3% this year, a slow and steady climb. Some analysts argue that the yuan is undervalued by as much as 40%.
Gold is a dollar-denominated asset and typically trades inversely to the U.S. currency. As the U.S. dollar slips, gold becomes cheaper to buy in other currencies and gold prices rise. When China first let the yuan appreciate almost 20% between 2005 and 2008, gold prices touched $1,000 an ounce for the first time.
Other currency appreciation scenarios have yielded stronger gold demand. "If you follow the Indian market like I do whenever the rupee appreciates Indian gold demand accelerates because obviously it's cheaper ... The [Chinese] government itself has been encouraging the citizenry to buy gold and silver and if the yuan rises I suspect that will facilitate the buying of more gold and silver," said John Embry, chief investment strategist of Sprott Asset Management.
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Gold demand in China has steadily strengthened since 1992 accounting for 11% of global gold demand in 2009. The World Gold Council sees demand doubling in the next 10 years from $14 billion to $29 billion and analysts think a stronger yuan could be a catalyst.
Juan Carlos Artigas, investment research manager at the World Gold Council, says that "holding other things constant, if the yuan appreciates against the dollar, gold becomes more attractive for the Chinese consumer as the price of gold in RMB [terms] falls."
