Yuan and gold

There is no clear long-term relationship between the yellow metal and the USD/CNY exchange rate.

In the previous editions of the Market Overview, we have already analysed the relationship between gold and some major world currencies, such as the U.S. dollar, the euro, or the Japanese yen. But what is the link between the Chinese yuan (officially: renminbi) and the yellow metal?

There is no clear long-term relationship between the yellow metal and the USD/CNY exchange rate. It is hardly surprising, as the exchange rate of the renminbi was set not by market forces but by the authorities for most of its history. In the beginning (until the 1970s, when the Chinese government started to liberalize the command economy), the yuan was overvalued to support imports and reduce the country’s dependence on imported manufactured goods. However, it was devalued to 8.74 in 1994 to support exports. The Chinese government maintained the peg to the U.S. dollar at about 8.3 until 2005. Although the peg was then lifted, it was reintroduced in 2008 when the financial crisis burst out. It was maintained until 2010, when China returned to the managed floating rate system. So let’s analyze the link between gold and the renminbi since then.

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