The brief rally in global gold prices, sparked mainly by the sudden devaluation of the Chinese yuan, as well as its effect on currency markets, came to an end Friday morning, with the prices dropping, albeit to a limited extent, across most markets. This upswing in prices has been the longest upward rally that the yellow metal has seen in recent months.

In global markets, gold touched a peak of US$ 1,126 per oz this week, though prices began easing after that reaching US$ 1,113 per oz on Friday morning, still above the low of US$ 1,077 per oz it reached last month. In India, where the decline in the value of the rupee added to the local costs, the yellow metal reached a level of Rs 26,000, before falling to around Rs 25,800 level on Friday morning.

Analysts believe that the decline which was triggered by the unexpected moves by the Chinese authorities in announcing devaluation of the yuan on two consecutive days, has been arrested by the perception that there will be no further upheavals in the currency markets in the short term.  Addressing a press conference, People’s Bank of China (PBOC) deputy governor Yi Gang said that the country's economic fundamentals were strong and there was no reason for the yuan to fall further.

A stronger dollar, which was boosted by some apparently positive data on US retail sales and a decline in joblessness, also reined in the rally in gold. Market watchers state that the exact timing of the long expected US Fed rate hike was uncertain. While currency market fluctuations may favour postponement beyond early September, the US economic data may encourage decision makers to announce it next month as earlier anticipated.

Some volatility will persist over the next few days, observers said, but the trend of weak gold prices would continue over the next few months, even as the possibility of the metal touching US$ 1,000 levels before the year end could not be ruled out.