Thursday, 4 April 2013

Gold Cuts Losses On Japan Easing

Gold futures cut the losses made earlier in the session as soon as the news came that the Bank of Japan decided to launch an aggressive easing program. Monetary easing boosts inflation which is in turn is positive for gold.

With Japan's interest rates pushed near zero, purchases of Japanese government bonds (JGBs) and other assets have been the main way the central bank has sought to help stimulate the economy and end the chronic price falls that have undercut growth.

Among the key measures agreed upon at Kuroda's inaugural policy-board meeting was an expansion of its government bond purchases, including buying longer-term debt. The meeting was one of the most closely watched in the post-war history of the central bank after Kuroda promised “bold” actions to create a 2% inflation rate.

Markets reacted sharply to the move, with the dollar rising to 94.46 yen from ¥92.90 just ahead of the decision, while the Nikkei Average swung from heavy losses to a close with a 2.2% gain.

The central bank said it would buy JGBs so that their amount outstanding will increase at an annual pace of about ¥50 trillion ($530 billion). Kuroda planned to explain the latest steps at a post-policy-meeting news conference later in the day.

Monetary easing is one piece of the “three arrow” strategy of Prime Minister Shinzo Abe to end Japan's two lost decades after the financial bubble burst in the early 1990s. Kuroda has vowed to do “whatever it takes” to meet the 2% inflation goal, which is part of a pact signed between the government and the Bank of Japan in January.

Gold for June delivery is trading down just $1.2 at $ 1552.3 an ounce on the Comex division of the New York Mercantile Exchange. The counter may now test resistance near $1580 - 1600 levels today. Yesterday it fell $22.40, or 1.4%, to settle at $1,553.50 an ounce. That was the lowest settlement for a most-active contract since June 28.

MCX April bullion also pared losses and jumped to as high as Rs 29300 levels. The counter should face a stiff resistance near Rs 29340 levels today.

No comments:

Post a Comment