Gold Prices "Need to Break $1700", Japan's "Bold Easing" Could "Threaten Central Bank Independence"

Gold Prices in Dollars hovered above $1690 per ounce Tuesday morning in London, close to one-month highs, while prices in Yen quoted on Tokyo's gold futures market set a new record, following an announcement of open-ended asset purchases and a new, higher inflation target by Japan's central bank.

"[Gold] is struggling along the 55-day moving average at $1695.96 and just below the downtrend channel resistance line at $1704.89," says Commerzbank senior technical analyst Axel Rudolph.

"We would like to see a daily close above the latter being made before we become medium term bullish again."

"Gold really needs to break above $1700," agrees Scotia Mocatta director Peter Tse, "and close above that level to attract short-term buyers, but the momentum has not built up that much, even when we are right before the [Chinese] Lunar New Year and physical demand is steady."

Silver meantime hovered above $32 an ounce for much of this morning, before dipping back to where it started the week, as other commodities were also little changed.

European stock markets opened lower Tuesday morning, reversing yesterday's gains, before regaining some ground by lunchtime.

Germany's DAX index was down more than 1% on the day at one point, before recovering some losses after ZEW surveys showed better-than-expected improvement in German and Eurozone-wide economic sentiment.

US markets reopen today after a holiday on Monday.

At its policy meeting Tuesday, the Bank of Japan announced it will adopt a 2% inflation target, double the previous goal of 1%, a move that had previously been suggested by the new government of prime minister Shinzo Abe, who was elected last month.

The BoJ also announced an open-ended program of buying ¥13 trillion ($146 billion) of mainly short-term government debt a month starting in January 2014, when its current quantitative easing program is due to end, as part of efforts to raise inflation to the 2% target.

"This is a step toward bold monetary easing," Abe said in response to the BoJ announcement.

Following the BoJ's announcement, gold prices in Yen for gold contracts traded on the Tokyo Commodity Exchange (Tocom) hit an all-time high Tuesday. 

Last week, the Yen spot gold price touched its highest level since 1980 – two years before the founding of the Tokyo Gold Exchange, which became part of the Tocom when that was created in 1984.

The Yen meantime added to yesterday's gains against the Dollar this morning, having started the week by touching a two-and-a-half-year low at the start of Monday's session.

"The weakness of the [Yen]...may reflect the possibility that efforts to revive inflation succeed too well, that the inflation genie will be let loose and will not stop at 2%," says a note from HSBC.

"Inflation in Japan has not sustained a 2% handle since the early 1990s, so we are talking about a pretty aggressive target for the BoJ. Will they really be able to micro-manage it higher without a blowout?"

Japan's government is "threatening an end to central bank autonomy," according to Jens Wedimann, president of Germany's Bundesbank.

"A consequence, whether intentional or unintentional, could moreover be an increased politicization of exchange rates," Weidmann warned in a speech last night.

"So far the international currency system has come through the crisis without a devaluation competition, and I hope very much that remains the case."

Over in India, the world's biggest gold buying nation, the government has raised import duties on gold from 4% to 6%, economic affairs secretary Arvind Mayaram told reporters late Monday.

"Consumption and imports will fall definitely," says Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation, who last week warned that such a duty hike could cause a drop in imports of up to 25%.

"This will also help the government reduce the current account deficit."

Several Indian policymakers have recently cited gold imports as a contributing factor India's trade deficit, which they say undermines the Rupee exchange rate.

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