The gold price was slightly lower when markets opened in U.S. this morning after a round of choppy trading that saw spot prices range from $1,111/oz and $1,117/oz. The modest losses this morning are almost entirely attributable to a stronger dollar. Meanwhile, stock indices around the globe were firmly in the green thanks to yet another interest rate cut in Japan.
BoJ Ventures Into Negative Territory
In a move that is true to the Bank of Japan's form but surprising nonetheless, the Japanese central bank decided to cut its interest rates below the zero lower bound. Beginning on February 16th, the bank's rate on excess deposits will be -0.1%. Though stocks were higher across the board due to the dovish news (effectively, a call for stimulus), government bonds were pushed even higher as a safe haven trade. The 10-year Treasury yield droped to 1.98%; Japan's comparable 10-year bond hit an all-time low of 0.09%; and Germany's benchmark 5-year note also reached a record low of -0.298%.
The move by the BoJ seems out of desperation as the economy has continued to falter. It follows yesterday news that the country's Economic Mininster Akira Amari, who was hand-picked to implement President Abe's "three arrows" of massive QE and stimulus, was forced to resign amid a graft scandal where he doled out favors to those willing to pay.
On the other side of the world, U.S. GDP growth in the fourth quarter came in below expectations, at just 0.7%. Yet, the dollar was still nearly 1% higher on Friday thanks to the losses for the yen and euro, its main peers. This lifted the DXY to 99.45, robbing gold of some of its momentum.
Some of this support for the dollar also came from month-end dollar demand. This trend happens because foreign importers must use dollars to make payments on many different imports that are denominated in dollars (such as oil). This often gives the USD a boost on the last trading day of each month.
Moreover, the move by the Bank of Japan prompted former Federal Reserve Chairman Ben Bernanke to opine that the Fed will be the next central bank to take the dive on negative interest rates.
Although gold is still about 0.2% lower on Friday to $1,113.50/oz, the yellow metal is still on track for its best month in a year. With gold rallying over 6% over the past six weeks, the mainstream media has naturally came out and attempted to bash gold. Check the rebuttals in the comments section of this Bloomberg View article for some perspective how badly the MSM gets everything wrong about gold. It shows yet again that the readers tend to be smarter than the "experts" on the topic.
Silver was about 5¢, or 0.25%, lower on Friday as well, trading at $14.25/oz.
The main support levels for gold remain at $1,101/oz and $1,107/oz. Resistance is first seen at the 50% Fibonacci retracement of $1,118.85/oz and then $1,123/oz. Gold remains stuck below its 200-day moving average but continues to ride above its 100-DMA and 20-DMA.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.