The gold price broke below key support at $1,180 this morning, hitting its lowest since July 2010, after the dollar rallied further on news that Japan will aggressively expand its stimulus measures.
The spot gold price hit a low of $1,167.20 before staging a small recovery to its current level of $1,173.00/1,173.80 per ounce, still down $26.50 on Thursday’s close.
Silver followed gold lower, breaking key support at $16.00 to bottom out at $15.99. It was last at $16.00/16.05 per ounce, still down 47 cents.
In an unexpected move, the Bank of Japan’s policy board voted to expand the pace of its quantitative easing, sending Tokyo stocks surging and the yen sharply lower against the dollar. The central bank will increase the monetary base at an annual pace of 80 trillion yen per year, above its previous target of 60-70 trillion yen.
“The dollar, the FOMC, the better-quality outlook – all raise the opportunity cost of holding gold,” FastMarkets analyst William Adams said. “But obviously the dollar strength today is being boosted by yen weakness following the Bank of Japan move.”
The dollar surged to 1.2572 against the euro, having already been bolstered by hawkish comments from the US FOMC regarding its economy. The US Federal Reserve, as expected, will conclude its asset purchase programme this month; the debate now turns to when it will raise interest rates, which have been near zero since December 2008.
The physical market will now be key to a recovery but, with the Indian festival season winding down this week, a near-term cataylst for physical buying looks unlikely. Investors will instead be looking to China, the world’s largest consumer last year, to provide take up on the cheaper price.
“Whether or not physical buyers step in is now more important than ever. We have indeed noticed a response this morning, but so far whatever interest is currently out there appears to be insufficient to reassure the market,” UBS’ Edel Tully said. “Sentiment is still quite fragile.”
“Can we expect physical buying to pick up soon? With no gold-related festivals or holidays lurking, there isn’t the same urgency as four weeks ago when India was preparing for Diwali,” Tully added.
In data out of Japan today, household spending disappointed at -5.6 percent, with the Tokyo core CPI at 2.5 percent and the unemployment rate at 3.6 percent.
Out of the eurozone, the EU flash CPI estimate was 0.4 percent as forecast, with the core figure at 0.7 percent. Elsewhere, the unemployment rate held its level of 11.5 percent, while the Italian preliminary CPI improved at 0.1 percent.
German retail sales and French consumer spending both undershot this morning at -3.2 percent and -0.8 percent respectively.
Later today, the US has the core PCE price index, employment cost index, personal spending, personal income, the Chicago PMI, revised UoM consumer sentiment and revised UoM inflation expectations.
In the other precious metals, platinum at $1,229.00/1,234.00 per ounce was down $13, while palladium slipped $3 to $777/783.
Sentiment may improve on news that South African power producer Eskom is struggling to maintain output owing to problems at several of its stations, which could restrict operations at the country’s PGM producers.
(Editing by Mark Shaw)