China cut its daily yuan reference rate by 1.6 % following 1.9 per cent devaluation on yesterday, rekindling fears over the start of a fresh Asian currency war, prompting a flight from risky assets and forcing traders to seek shelter in the safety of the precious metal.

A weaker dollar also boosted the demand for Gold as an alternative asset. Weaker greenback makes Gold cheaper for those holding other currencies, thus bolstering demand.Click Mcx bullions tips

The dollar weakened on reduced prospects of a September Fed rate hike following the turmoil caused by the China devaluation shock as a slowdown in China hurts global commodity prices and exerts further downward pressure on inflation.

New York Fed President William Dudley stressed that while the China devaluation move had huge implications for the global economy, the Fed remains on track for a lift-off in interest rates in the near future.

Gold may continue to trade higher as China devalued its currency for a third day. At the MCX, Gold futures contract for October 2015 closed at Rs 26,014 per 10 gram, up by 2.3 per cent after opening at Rs 25,600, against the preceding closing price of Rs 25,426. It gained the intra-day high of Rs 26,034.

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