Gold Bugs Rally On Evergrande Group’s Ongoing Debt Crisis

Following nearly 83 basis points of gains, gold was down slightly lower in London on Tuesday morning.

However, investors were cautious ahead of the Federal Reserve’s policy decision and China’s ongoing debt crisis, which caused investors to take a risk-averse stance.

During the time this report was written, yellow metal futures fell by 0.08% to $1,762 an ounce.

Buying yellow metal on Monday was a two-fold benefit. Gold is a safe-haven asset, so it appeals to investors. When economic conditions are bad, traders traditionally look to gold as a store of value.

In addition, there is a correlation with bond yields. As Treasury yields fell – a result of safe-haven flows – gold had a lower opportunity cost to be held.

Gold’s appeal appears to be strengthened by current market conditions; however, its fundamentals remain strong.  Nevertheless, there are rumors’ Beijing may offer Evergrande a rescue package this week.

Market confidence would likely rise as a result, but gold prices would likely fall. Given that the developer owes over $300 billion, the payment deadline still remains in doubt.

Meanwhile, investors are awaiting the Fed’s policy announcement later today, which will include clues about how soon they can expect asset tapering and interest rate rises.

Isabel Schnabel, a member of the European Central Bank (ECB) board, said on Monday that the volume of bond purchases is becoming “less important” as the economy improves and the money-printing scheme is used to guide rate expectations.

Wednesday and Thursday the Banks of England and Japan will each release their respective policy decisions.

The price of silver climbed 0.1% after reaching a more-than-nine-month low of $22.01 in the previous session. Platinum rose 0.5% to $915.05 after hitting a 10-month low on Monday, while palladium rose 0.6% to $1,896.30 after hitting its lowest level since mid last year.