Gold holds above $1,120/oz. amid monetary easing

Feb 1, 2016 - 2:28 PM GMT

Gold futures posted a modest gain to began the new trading week as looser monetary policy by the Japanese central banks reignited flight-to-safety buying.

Gold for April delivery on the Comex division of the New York Mercantile Exchange was last up $4.70 or 0.4 percent to $1,121.10 per ounce. Trade has ranged from $1,115.30 to $1,124.10.

On Friday, the Japanese central bank decided to lower rates below the zero-bound for the first time in the country’s history.

The news followed a similar tone and rhetoric by European Central Bank president Mario Draghi, who said persistently low inflation could spur the bank to lower rates as soon as March.

Both economic regions are dealing with low inflation, tepid growth and growing deficits as the regions struggle to recover from the Great Recession.

“We are more bullish now of gold than we were previously for the market has begun to move sharply in our favour following the comments from Mr. Draghi two weeks ago and following the Bank of Japan’s actions and comments on Friday,” Dennis Gartman, editor and publisher of The Gartman Letter, said.

“Capital is beginning to fear what the monetary authorities can do and shall do over the course of the next several months and years as they try to create an inflation,” he added.

Fears of a hard-landing for the Chinese economy are also stoking tensions as the country’s central bank has intervened at an historic level to stabilise the economy and reassure investors.

Overnight, economic reports showed the manufacturing sector remains in contraction despite lending cuts and numerous capital injections from Beijing.

“Weak economic data from China for example is leading to greater uncertainty among market participants about the state of the global economy,” Commerzbank said.

Meanwhile in spec positioning, Gold ETF holdings rose for the fourth straight week, climbing 13 tonnes to 1,556 tonnes as of January 29 after an increase of 31 tonnes in the prior week. So far this year, ETF investors have bought around 74 tonnes, corroborating a positive shift in investor sentiment toward gold.

In a busy US data day, Core PCE Price Index month-over-month in December was flat, below the forecast of a 0.1 percent gain, while personal spending and income over the same period was unchanged and a 0.3 percent uptick respectively.

Later today, Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending, ISM Manufacturing Prices and speeches by Draghi and FOMC member Stanley Fischer are due on the agenda.

Turning to wider markets, Germany’s DAX and France’s CAC-40 were each down 1.3 percent, while the dollar was trading 0.5 percent softer at $1.0884 against the euro.

As for other precious metals, Comex silver for March settlement slipped 1.3 cents or 0.1 percent to $14.240. Trade has ranged from $14.200 to $14.360.

“Silver prices seem to have built a base and are now attempting a rally; we wait to see if the rally grows legs. We would like to see the gold/silver ratio fall, which would show that investors view silver as a undervalued proxy for gold,” William Adams, Head of Research at FastMarkets, said.

Platinum for April delivery sunk $5.80 or 0.7 percent to $868.50 per ounce, while the most-actively traded palladium contract stood at $502.60 per ounce, up $4.10.

(Editing by Tom Jennemann)