Chinese yuan continuing to strengthen

Precious metals have had a decent start to the week, following last Friday’s selloff. Gold has managed to put some distance between itself and $1,700, while silver is managing consistent time above $32.50, which marks a change from the pattern we’ve seen for much of the last year, whereby that price has tended to be an upper-limit for the metal. Platinum and palladium as well as industrial commodities have risen as well, following more optimistic noises coming from Washington about fiscal cliff negotiations. US House Speaker John Boehner said that talks last Friday between Democrats and Republicans had been “constructive”.
On a sadder note, gold is also receiving buying support from the latest Israel versus Hamas conflict in Gaza. An escalation of the fighting will probably push gold higher – along with the “safe haven” US dollar and crude oil – and result in selling pressure on the euro and general equities. All of this applies in spades to any possible conflict between Israel and Iran.

The dollar continues to hang on above 80.00 on the Dollar Index (USDX); last week’s big anti-austerity demonstrations in Europe and disappointing UK retail sales helping the greenback. But more notable recently has been depreciation in the yen – the JPYUSD hitting a seven-month low last week following calls from Japan’s main opposition leader for the Bank of Japan to engage in more aggressive monetary easing.

However, the Chinese yuan has been a notable exception (which isn’t reflected in the heavily Euro-North-American centric USDX). The CNYUSD has been in an uptrend since early August, when it became clearer that the Fed was intending to fire up its printing presses once again. Last Wednesday it hit a new record high at 0.16076. Are the Chinese finally starting to appreciate the benefits of a strong currency?

For more commentary on China, have a listen to our new interview with Harvard Professor Niall Ferguson.