The gold market saw renewed buying interest Thursday with weak first quarter US GDP data and a lack of fresh monetary stimulus in Japan combining to soften the dollar and lift the precious metals complex.
Gold for June delivery on the Comex division of the New York Mercantile Exchange climbed $15.90 or 1.3 percent to $1,266.30 per ounce. Trade has ranged from $1,239.10 to $1,268.70.
This morning, the Bank of Japan (BOJ) rattled markets by deciding to keep its monetary policy unchanged. The lack of additional stimulus measures lead to a sell-off in the Nikkei, which closed down 3.61 percent.
“The BoJ has made a very, very big mistake,” Dennis Gartman, editor of the Gartman Letter, said. “The stock market has plunged. Corporate Japan, hoping for greater monetary wind behind its sails, has been thrown an anchor instead and needing a materially weaker yen has gotten a materially stronger yen instead. We are stunned.”
While in the US, unemployment claims hit a 42-year low of 247,000, which easily beat the 257,000 forecast. But US GDP increased by a 0.5-percent annual rate in the first quarter, the slowest pace since the first quarter of 2014 and below the 0.7-percent consensus estimate.
This contradiction of a strong jobs market with tepid GDP growth has put the Federal Reserve in a bind. In its April statement released yesterday, the Fed decided to maintain near-zero interest rates despite noting that global risks had eased over the last several weeks.
Investors aren’t expecting the Fed to raise rates anytime soon with a majority of investors citing December as the most likely time for the Fed to raise rates again, according to the CME Group FedWatch.
“From a policy standpoint, should the US economy post meaningful improvement between now and June, assuming the Fed’s concerns surrounding international ‘risks’ are not reignited, policy makers appear well positioned to announce the second rate hike in less than two months’ time,” Lindsey M. Piegza, Chief Economist at Stifel, said. “Of course, following this morning’s disappointing GDP report, it’s difficult to imagine a marked improvement in the economy over the next two months.”
Still, chair Janet Yellen has warned that prolonged periods of artificially low interest has potential to derail the American recovery and sink the economy back into a recession.
Turning to US markets, the Dow Jones industrial average and S&P were don 0.4 percent and 0.1 percent respectively, while the dollar weakened 0.3 percent to $1.1347 against the euro.
Paper holdings of gold ETF’s tracked by FastMarkets are seeing a boost in investment demand, with 0.41 tonnes bought overnight lifting the total holdings to 1,807 tonnes.
“The charts look bullish, our medium-term outlook remains bullish, the gold/silver ratio is improving and the platinum/gold discount is shrinking, all of which suggests investor sentiment is becoming more bullish for precious metals,” William Adams, Head of Research at FastMarkets, said. “But we are nervous about how long the fund longs already are.”
As for other precious metals, Comex silver for May deliver surged 26.10 cents or 1.5 percent to $17.550 per ounce. Trade has ranged from $17.140 to $17.605.
“The main difference between gold and silver is that silver has substantially more industrial applications than gold,” Georgette Boele, coordinator FX and precious metals strategist at ABN AMRO, said. “When the overall outlook on China became less negative as Chinese data stabilised, the industrial demand outlook for platinum, palladium and silver improved.”
Platinum for July settlement gained $26.60 or 2.6 percent to $1,052.0 per ounce, while the most-actively traded palladium contract stood at $624.10, down $14.45 or 2.4 percent.
(Editing by xxx)