Gold Stocks Explode Higher After China Slashes Dollar Exposure in Renminbi Basket

China designed the renminbi CFETS basket as a way to peg the yuan against a variety of currencies to best represent their trading partners. In a surprise move last night, they slashed their dollar exposure from 26.4% to 22.4%, perhaps indicating less dependence on US markets for their goods. In the past analysts viewed this scheme as an indicator of further yuan weakness.

Here’s the new CFETS basket.

Today’s result, however, is a sharply lower dollar and fast rising gold and silver prices.

Gold miners are sharply higher, bouncing after months of underperformance.

In case you’re wondering about gold, seasonally speaking, both January and February are, traditionally, the best times to own them.

Valuation wise, the sector is a little elevated. But when comparing it to previous years when gold was running higher, current valuations are nowhere near stretched.

The fate of the yellow metal is one embedded in the minds of investors. If people feel insecure about things, gold, typically, will trade higher. Or, if the Fed signals they won’t hike rates, investors will sell off dollars and bid up precious metals. Perhaps the market is being logical today, forecasting a trade war with China — which would definitely cause GDP to slow in the interim and cause Central Banks to meddle in our affairs again?

Somehow I doubt the ADD addled minds of traders are thinking that far ahead.

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