Gold rises as the dollar falls after news of the Bank of Japan’s policy review

The Bank of Japan’s sudden decision to raise the benchmark interest rate ceiling from 0.25% to 0.50% sent ripples through the global financial markets. Since 2016, the BoJ has set its target range for the 10-year Japanese government bond yield close to zero, with a maximum of 0.25%. As other major central banks begin to enact rate hikes this year, the Bank of Japan has kept its benchmark interest rate ceiling near zero.

According to Reuters News, β€œThe Bank of Japan shocked markets on Tuesday with a surprise adjustment to bond yield control that allows long-term interest rates to rise further, a move aimed at mitigating some of the costs of prolonged monetary stimulus…but the central bank kept its yield target unchanged and said it would increase sharply.” Bond purchases, indicating that this move was a fine-tuning of the current ultra-loose monetary policy rather than a withdrawal of stimulus.”

The Bank of Japan’s move stunned financial markets globally. The value of the Japanese yen rose dramatically to a four-month high against the US dollar which in turn led to strong gains across the board in the precious metals. Gold rose 1.7%, silver 5.22%, palladium 3.79% and platinum 2.53%.

As of 4:15pm EST on a gold futures basis, the most active February 2023 contract was pegged at $1828.20 after accounting for a net gain of $30.50. Spot gold gained $31 and is currently flat at $1818.40. Silver gained the most, over 5%, with the most active futures contract gaining March 2023 at $1.20 and holding steady at $24.39.

Gains in precious metals were partially driven by a weaker dollar but the vast majority of today’s moves were the result of aggressive buying in the markets.

Our technical studies indicate that support levels for gold futures are first at $1795, which corresponds to the long-term moving average used by market technicians. Followed by the 200-day moving average, there is a major support below the 200-day simple moving average at $1785 which is also based on the 23.6% Fibonacci retracement. The Fibonacci retracement uses a dataset starting from $1,619, the low of two months ago, and ending at $1,837, the highest value for gold since August.

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Disclaimer: The opinions expressed in this article are those of the author and may not reflect the opinions of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. does not accept The author of this article will not be held liable for losses and/or damages arising from the use of this publication.

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