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Analysts See Limited Impact On Gold If Yuan Included In IMF Currency Basket

(Kitco News) - The Chinese yuan’s expected inclusion in a benchmark currency basket is not expected to have a meaningful impact on gold prices, especially in the short term, analysts said.

Newswires reported in October that the International Monetary Fund’s staff is expected to give the yuan the go-ahead for inclusion in the basket of currencies. Chinese authorities have been pushing for the yuan to be added to the Special Drawing Rights basket, seeking to reduce dependence on the U.S. dollar and also to signal the country’s importance as an emerging economic powerhouse.

Those familiar with the IMF staff report anonymously told newswires last month that there did not appear to be any major obstacles. Expectations were for the IMF board to consider the report in November.

A calendar for the IMF board says a Nov. 30 meeting will address “review of the method of valuation of the SDR.” However, the IMF noted that the posted schedule is subject to change and the agenda for each meeting is typically finalized the day before.

“This should be no surprise for the markets,” said Bill O’Neill, one of the principals with LOGIC Advisers, referring to inclusion of the Chinese currency.

But don’t look for any fireworks in the gold market, he and others commented.
“In the short term, I don’t think it means anything at all,” O’Neill said. “It’s totally discounted …. It didn’t elicit much reaction when it was indicated that they had met the requirements.”
Robin Bhar, metals analyst with Societe Generale, also suggested there is likely to be little near-term impact on gold, assuming the measure is approved by the IMF.

Longer term, he said, inclusion of the yuan in the IMF basket could mean the currency generally becomes more accepted by investors, money managers and others. If so, this could come at the expense of gold, if investors were more willing to hold the yuan instead, he said.

Overall, he continued, economic performance is likely to be the more important driver for the precious metal. China, along with India, is one of the world’s two largest consumers.

Jeffrey Nichols, managing director of the consultancy American Precious Metals Advisors and economic consultant for Rosland Capital, said he also sees little near-term effect on gold, although he suggests there is potential for the yuan’s inclusion to be slightly beneficial for the metal in the “very long run.” Gold generally moves inversely to the U.S. dollar, thus could be helped if the dollar’s role as a reserve and settlement currency is diminished, he explained.

“The IMF inclusion of the yuan in the SDR is mildly positive for the yuan. The counter to that is it’s mildly negative to the dollar,” he said. Still, he said, the greenback won’t lose its status as the primary world currency, although it may be “a bit diminished” as a consequence.

However, any long-term benefit to gold is likely to be “subtle,” he added.

By Allen Sykora of Kitco News;



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