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Bank of Japan Announces Monetary Easing

Release Date: 
Tuesday, July 10, 2012

Gold prices rose on Tuesday as the central bank in Japan announced a major fiscal stimulus program. Gold was $1.00 higher at 7:44 a.m. Pacific Time on the New York Spot Market, trading at $1,589.30 per ounce. Spot silver was $0.16 lower at the same time, trading at $27.28 per ounce. (Click here for the most current spot prices.)

Bank of Japan Governor Masaaki Shirakawa said the bank was implementing "strong monetary easing steps, such as its near-zero interest rate policy and asset purchases in order to overcome deflation." Shirakawa said the central bank has accumulated up to $681 billion worth of asset purchases so far, but is aiming to purchase an additional $200 billion in assets. With this additional purchase, "we believe the impact of monetary easing will be further enhanced," the central bank governor said.

"Banks are now starting to pick up gold, given the amount of monetary stimulus pumped in across various economies across world," said Michael Hewson, senior market analyst at CMC Markets. "They’re trying to mitigate currency exposure and currency depreciation."

"If you take the view the Fed is going to print more money, it would make sense for central banks to hold more gold," said Hewson. "It’s the only thing you can’t manipulate print or devalue."

Gold demand in China may expand 13 percent to 870 metric tons in 2012, the World Gold Council said, revising an earlier forecast. Jewelry demand may expand 7.7 percent to 550 tons while demand for bars and coins may gain 24 percent to 320 tons.

Albert Cheng, Far East managing director said "we are still optimistic on China's gold-investment demand as investors here don't have much choice in terms of investing their wealth." He added, "the stock market's performance is poor and the property market's rally has stalled." Chinese Premier Wen Jiabao pledged on July 8 to continue property controls to prevent real estate prices from rebounding to prior high levels.

China remains the "most important player on the global gold market," Commerzbank AG said in a report yesterday, citing increased demand from an expanding middle class and purchases by the country's central bank.

Merrill Lynch expects gold price to rise if the Fed does take action to keep rates low later in the year. "Loose monetary policies, with a scope for more aggressive balance sheet use in the U.S. and Europe, will keep real rates in most reserve currencies low (or negative) during 2012. We continue to believe that this will allow investor demand to remain strong and prices to reach our $2,000/oz target by the end of the year," the bank said.

(Sources: "Gold futures edge up after BOJ comments," MarketWatch, July 10, 2012; "Gold draws strength from dollar decline," Reuters, July 10, 2012; "World Gold Council sees China gold demand rising 13%," Mineweb, July 10, 2012)

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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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