247Bull.com Editor: The majority of market commentators focus on the price of gold in US dollars, however over the past 3 months the price of gold in Japanese yen has broken out to all-time highs, advancing 12.2%. There will be a delay between the BoJ’s actions to devalue the currency and the time when inflation begins to rear its head. However, the devaluation of the currency is already reflected in the yen price of gold.
The dollar gold price drifted back below $1650 an ounce Wednesday morning, 1.1% down on the week so far, although it jumped higher in Sterling following after a Bank of England report said policymakers are prepared to “look through” persistently high UK inflation.
“The $1625.77 level remains key for [gold's] medium term trend,” says Axel Rudolph, senior technical analyst at Commerzbank.
“Failure here should provoke a sell-off to below $1600 level before the precious metal levels out and starts rising again.”
“Technically the metal appears susceptible to a move lower,” agrees a Deutsche Bank report, perhaps to the 1,600 an ounce level or even $1,550 an ounce… There is a distinct lack of obvious positive catalysts for gold at the moment, with the current environment seemingly bereft of macro[economic] concerns.”
Silver also drifted lower this morning, but held above $31 an ounce, while other commodities ticked higher.
“We believe silver is likely to move higher in 2013 based on four factors,” says a note from HSBC.
“Higher industrial demand, steady investor appetite for hard assets, strong coin and bar purchases, and a bottoming out of jewelry demand.”
European stock markets recovered this morning after easing in the first few hours of trading. The FTSE in London was the weakest performer of the major European markets this morning, dropping 0.2% before recovering some ground, after pharmaceutical firm Astra Zeneca, oil producers BP and Shell and payroll software provider Sage all went ex-dividend, meaning anyone who buys their shares today will not receive the next dividend payment.
Shares in London-listed miner African Barrick Gold meantime fell more than 9% to a six-month low this morning after the firm announced its lowest yearly production forecast since it listed in London in 2010. Earnings fell by 39% in 2012, the company said, as production fell and costs rose.
Until last month, Barrick Gold was in talks with China National Gold to sell its 74% stake in African Barrick, but the talks ended with no deal done.
Platinum meantime rose to $1723 per ounce this morning, its biggest premium over gold in 17 months, after the world’s third-largest producer Zimbabwe repossessed land held by the country’s biggest producer Zimplats.
In Washington last night, US president Barack Obama used his State of the Union address to highlight job creation, immigration and gun control as priorities for his second term.
“Most of us agree that a plan to reduce the deficit must be part of our agenda,” Obama said.
“But let’s be clear: deficit reduction alone is not an economic plan.”
“[Obama is promoting] a go-it-alone approach to pursue his liberal agenda,” Republican House of Representatives speaker John Boehner said following the address.
The Pound fell sharply against the Dollar and Euro this morning, following the publication of the Bank of England’s Quarterly Inflation Report, which says the Bank will “look through” above-target inflation “as long as domestic cost and price pressures remained consistent with inflation returning to the target in the medium term.”
“Attempting to bring inflation back to the target sooner by removing the current policy stimulus more quickly than currently anticipated by financial markets would risk derailing the recovery and undershooting the inflation target in the medium term,” the report says.
The Bank’s view on how likely inflation is to return to its 2% target is based on its own forecasts. Figures published yesterday show UK consumer price inflation remained at 2.7% last month, having been above target in every month since December 2009.
Gold in Sterling rose 0.9% to £1059 per ounce immediately following the publication of this morning’s report, just below its high for the week so far.
Criticism of Japan’s recent policy actions, which have been followed by sustained weakening of the Yen, was “not the key message” of yesterday’s G7 statement reaffirming a commitment to market determined exchange rates, according to Standard Bank currency strategist Steve Barrow.
“The key message is that international policymakers want China to have a market determined exchange rate, and it is particularly the message from the US which is, after all, the dominant player in any G7 or G20 forum,” says Barrow.
“G20 meetings start this weekend and we likely will see more forceful policy statements about individual currency devaluations going forward,” adds Ed Meir, analyst at brokerage INTL FCStone.
“However, the Japanese will likely water down any harsh language in the final communiqué by bringing up the disruptive actions the US has been taking with respect to its massive easing program and its inability to reach badly needed fiscal accords.”
Ben Traynor | BullionVault