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Open-Ended Easing from Bank of Japan Supports Gold

Release Date: 
Tuesday, January 22, 2013

The price of gold edged higher after the Bank of Japan (BOJ) on Tuesday announced plans for open-ended fiscal stimulus with a 2 percent inflation target.  Gold was $2.00 higher at 7:54 a.m. Pacific Time on the New York Spot Market, trading at $1,693.10 per ounce.  Spot silver was $0.06 higher at $32.18 per ounce.  (Click here for the most current spot prices.)

The 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.

“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 Bank of Japan'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.

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.

(Sources:  “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)

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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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