NEW YORK ( TheStreet ) -- Gold prices nose-dived double digits Monday after China's announcement that the yuan would rise in value improved risk appetite and prompted investors to dump gold and buy stocks.
Gold for August delivery settled down $17.60 to $1,240.70 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Monday has traded as high as $1,266.50 and as low as $1,233.60. The U.S. dollar index was adding 0.23% to $85.90 while the euro was falling 0.45% to $1.23 against the dollar. The spot gold price Monday was down more than $20, according to Kitco's gold index.
Risk appetite improved Monday as investors cheered a stronger yuan and traders were selling gold and using the profits to buy stocks. "Profit taking in gold
However, many analysts believe a stronger yuan is good news for gold prices over the long-term as the move will improve China's purchasing power. The yuan was rising 0.45% against the dollar and the currency could appreciate by 3% this year, a slow and steady climb. Some analysts argue that the yuan is undervalued by as much as 40%.Gold is a dollar-denominated asset and typically trades inversely to the U.S. currency. As the U.S. dollar slips, gold becomes cheaper to buy in other currencies and gold prices rise. When China first let the yuan appreciate almost 20% between 2005 and 2008, gold prices touched $1,000 an ounce for the first time. History shows that other currency appreciation scenarios have yielded stronger gold demand. "If you follow the Indian market like I do whenever the rupee appreciates Indian gold demand accelerates because obviously it's cheaper ... The