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Bank of Japan Announces Further Monetary Stimulus

Release Date: 
Saturday, January 26, 2013

After posting slight gains early in the week, gold prices fell as the House of Representatives passed a bill to temporarily suspend the debt ceiling.  Gold was $28.50 lower this week, settling at $1660 per ounce at 2:15 PM Pacific Time at the New York Spot Market close, while silver was $0.26 lower, closing at $31.56 per ounce.

The Bank of Japan (BOJ) stated it will buy approximately $146 billion (13 trillion yen) in assets per month beginning January 2014 and set a 2 percent inflation target, double its current goal. "Indirectly, gold should find support from the BOJ stimulus as the liquidity created by the BOJ finds its way into the broader global economy," said Walter de Wet, head of commodity strategy at Standard Bank, in a note to clients.

In a note Tuesday, Julian Phillips, founder of, said he expects Japanese investors will be “fully aware that this policy will weaken the buying power of the yen both at home and abroad” and expects them to favor gold to turn the currency loss into a potential gain.

“Loose monetary policy benefits gold and the Bank of Japan’s move may just be the impetus gold needs to take it past $1,700,” said Tao Jinfeng, an analyst at Guotai Junan Futures Co., a unit of China’s largest brokerage by revenue.

The BOJ’s plan to pursue open-ended asset purchases will help support gold prices in the near term, said Lynette Tan, senior investment analyst with Phillip Futures.  She added that the Lunar New Year celebrations across Asia have improved the physical demand for gold.

"If you start to see inflationary pressure and negative interest rates in Japan, people will be thinking about how to protect their savings," said Nick Trevethan, senior commodity strategist at ANZ in Singapore.  The lack of suitable investment products in the market is likely to drive investors back to gold, he added.

The House bill passed on Wednesday suspends the nation’s $16.4 trillion borrowing limit until May 19.  At that point, the U.S. borrowing debt ceiling would be automatically raised to reflect the national debt at that time.  

The gold price may rise over the next three months as Congress attempts to tackle the country’s debt ceiling and the U.S. economy slows, Goldman Sachs Group Inc. said.  “We see current prices as a good entry point to reestablish fresh longs,” analysts Damien Courvalin and Alec Phillips wrote in a Jan. 18 report. Goldman Sachs reiterated a three month target of $1,825 per ounce.  “The uncertainty associated with these issues, combined with our economists’ forecast for weak U.S. GDP growth in the first half of 2013 following the negative impact of higher taxes will push gold” to the three-month target, they wrote.

According to Nataxis analyst Nic Brown, “the debate over the debt ceiling and automatic spending cuts, should give us a clear indication which path U.S. politicians choose to take; repay your debt or inflate it away… If U.S. fiscal austerity proves either politically unpalatable or economically impossible, we could be looking at a weaker dollar, cuts to U.S. credit ratings and potentially significantly higher gold prices.”

Martin Arnold, senior analyst at ETF Securities, said there is room for precious metals in any portfolio as uncertainty still dominates the current environment.  “Once you see gold tick above that key $1,700 mark, that’s quite a key technical level, then you start looking at the record highs, certainly in nominal terms, around the $1,900s,” he said.

“Gold is there as a diversifier in case of the worst possible scenario coming to pass,” Mr. Arnold commented.  “You’re seeing central banks diversifying their foreign exchange reserves for good reason.  There’s debasement of foreign currencies, and so we’re seeing a lot of private investors doing the same.   So, you’re only talking about 0-10% in terms of your holding, just in case.  There are some very good reasons that we’ve mentioned to be holding gold, [such as] if you’re seeing the dollar weaken…you’re also getting a little bit more support from that angle, as well.”

The U.S. Mint sold out of 2013 American Eagle silver coins  selling 6.01 million ounces of American Eagle silver coins in January. The mint’s sales are “temporarily” suspended and will resume on or about the week of Jan. 28 when inventory is replenished..

“With silver, you can benefit from both sides: its safe- haven status and the fact that it’s also an industrial commodity,” said Frederique Dubrion, the Geneva-based president and chief investment officer of Blue Star Advisors SA, which manages metals and energy assets. “Given some positive leading indicators, especially in the U.S., investors would probably prefer turning to silver rather than to gold.”…

A survey of 37 analysts conducted by Reuters projected an average spot gold price of $1,775 per ounce in 2013, 6.4 percent higher than the 2012 average of $1,668 per ounce.

Michael Widmer, analyst at Bank of America-Merrill Lynch, reiterated the bank’s six-month gold price target of $2,000 per ounce.

Gold, which rose for a 12th year in 2012, may average $1,830 an ounce in the final quarter from $1,715 in the first, $1,745 in the second and $1,800 in the third, analysts Peter Richardson and Joel Crane of Morgan Stanley said in a report on Thursday. Prices will be supported by investment and central-bank buying.  Prices will also be supported as miners struggle to raise output, Morgan Stanley said. The bank’s 2014 forecast was raised 2 percent to $1,845.

Goldman Sachs analysts Damien Courvalin and Alec Phillips wrote in a Jan. 18 report. “We see current prices as a good entry point to re- establish fresh longs,” analysts Damien Courvalin and Alec Phillips wrote in a Jan. 18 report. The bank reiterated a three- month target of $1,825 an ounce. 

 “Gold is at the very end of a cyclical correction and the gold price will be up and running again soon,” said Felix Zulauf, president of Zulauf Asset Management AG in Switzerland. “Once gold surpasses $1,800 an ounce, it will run to the low- to mid-$2,000s.”

Analysts at Nomura say they see gold prices rising in the coming weeks…”We would not be surprised to see gold break the important $1,700 (area) higher and could see the $1,725 highs we saw in December, in the coming weeks,” they say.


(Sources:  “Gold May Fall on U.S. Debt Ceiling Vote, Indian Demand,” Bloomberg, January 23, 2013; “Gold futures slip from one-month highs,” Marketwatch, January 23, 2013; “Gold Stalls as US Debt Talks Make Progress,” CNBC, January 23, 2013; “ANALYSTS VIEW-Outlook for precious metals in 2013,” CNBC, January 22, 2013; “Should You Buy Precious Metals? CNBC, January 22, 2013; “Gold ends back above $1,690 on safe-haven appeal,” Marketwatch, January 22, 2013;  “Gold Trades Near One-Month High as BOJ Announces Stimulus,” Bloomberg, January 22, 2013; PRECIOUS-Gold edges up as BOJ monetary stimulus supports,” Reuters, January 22, 2013; “UPDATE 1-Gold's bull-run seen topping out in 2013/14,” Reuters, January 22, 2013; “ANALYSTS VIEW-Outlook for precious metals in 2013,” CNBC, January 22, 2013; “Gold Futures Rise on Japan Inflation Target,” Wall Street Journal, January 21, 2013; “Gold Higher in Asia, BOJ Move Underpins; Precious Metals Firm,” Wall Street Journal, January 21, 2013;  “Goldman Forecasts Gold Rally Amid Debt-Ceiling Confrontation,” Bloomberg, January 21, 2013; PRECIOUS-Gold rises as U.S. budget talks lift European stocks,” Reuters, January 21, 2013; “PRECIOUS-Gold inches up on Japan easing hopes,” Reuters, January 21, 2013;  U.S. Mint Silver Coins Run Out as Buying at 5-Year High Bloomberg, January 18, 2013)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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