Gold Climbs Further as Reality Sets In

A picture paints a thousand words and as the New York business day comes to a close, the following gold and silver spot charts speak volumes. The metals have now achieved improvements over four consecutive sessions. With gold having knocked on the door of $1270 (the highest level since March) and silver breaching $17.60 (the highest in around a year), obviously something is at play.

As we discussed yesterday, we live in “confusing and risky” times and in support of this concept, the Bank of Japan overnight made an unexpected decision by withholding more stimulus and effectively making no change to its asset purchase program. BoJ Governor Kuroda expressed a willingness to take rates further into negative territory but stated that applying negative interest rates to lending facilities was not debated at the meeting. The aftermath of the announcement saw an equity selloff and a drop in the USD of around 3% against the Yen representing the biggest move in the currency pair in almost a year. The U.S dollar index fell sharply to 93.81 and precious metals climbed higher.

Prior to this, the Federal Reserve also announced no action regarding interest rates although this news was the consensus expectation. Furthermore, with statements such as “economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate”, no definitive guidance was given regarding its intention to move rates in June; contributing further to the financial fog.

To add further strain, the U.S. Commerce Department overnight announced sluggish figures for 1^st quarter GDP. At a seasonally adjusted annualised rate of only 0.5% against expectations of 0.7% and with Barack Obama set to become the only president in history not to deliver a single year of 3+% economic growth, confidence in the U.S. dollar and the economy behind it has been under pressure.

This news suggests that the Federal Reserve will indeed be “gradual” in its approach to rate rises, although many commentators are now predicting a return to QE. Such low-rate environments look to be here to stay and are considered supportive for gold due to the lower differential costs with so-called yield bearing holdings.  This wraps up a week that has provided an undeniably bullish sentiment for precious metals.