Gold has broken through resistance at $1,690 and may challenge the $1,700 level after last week's biggest weekly gain since early September. Many investors remain nervous that contagion in the euro zone may not be averted ahead of the European Union debt crisis summit this weekend.
CFTC data shows that hedge fund managers, large speculators and gold and silver traders increased their net-long position in New York gold and silver futures. Speculative positioning in the market remains at very low levels after sharp liquidation which suggests gold may have bottomed and should rise from these levels.
Hong Kong, the world's third-largest gold trading centre, has become the world's first place to offer gold trading in yuan, further positioning the yuan or renminbi as a potential global reserve currency.
Hong Kong's Chinese Gold & Silver Exchange Society, a century old bullion bourse, has introduced gold trading quoted in Chinese yuan, making it more convenient for Chinese people and high net worth individuals (HNWs) holding yuan to invest in the precious metal and opening a new way to hedge.
The move comes amid the continuing push by Chinese authorities for a more international role for its currency and as an alternate reserve currency to the embattled dollar and euro.
With gold now traded in yuan, it is only a matter of time before oil is traded in yuan thereby positioning the yuan as 'petro yuan' and a rival to the petrodollar's status as the global reserve currency.
The move reinforces Hong Kong's status as an offshore hub for the Chinese currency and as a rival to New York, London and other cities as a global financial capital.
The Chinese Gold & Silver Exchange said that the service, dubbed Renminbi Kilobar Gold, is targeting retail and institutional investors. The product is among the latest offerings designed to tap the fast-growing pool of yuan deposits within Hong Kong banking system.
By attracting both local and international investors, the Renminbi Kilobar Gold is a significant step towards internationalizing the renminbi, said Haywood Cheung, president of CGSE.
From inception the contract may generate a very significant HK$6 billion ($770 million) in trades a day, exchange President Haywood Cheung said in an October 14 interview. Daily bullion trading volume at the bourse, which has 171 active members, has surged to HK$136 billion this year from last year's HK$31 billion on appetite for gold as a safe haven.
There's triple demand for this yuan product, said Cheung late Friday. Investors can enjoy the bull market in gold, the yuan's appreciation and hedge gold denominated in other currencies against the yuan.
The uncertainties in the global economy are supporting gold, Cheung said.
It's still the right timing, Cheung said. With the depreciation of the dollar and problems in the Eurozone, investors realize they want some other currencies that are safer like the renminbi. Gold can be a way for people to bet on the yuan, even it's not yet fully convertible.
The society, started in 1910, will consider trading silver in the Chinese currency later, Cheung said, declining to identify the timeframe. The society has imposed a daily ceiling of 300 kilos for physical delivery of gold denominated in yuan to avoid depleting the currency pool in Hong Kong, he said.
The sudden influx into gold bars may take away half of the yuan liquidity in Hong Kong, Cheung said.
Should even a small amount of traders of the new yuan denominated gold contract attempt to take delivery of physical gold bars it may create supply issues in a marketplace that is already experiencing supply constraints.