Gold & Silver Prices Jump on Fresh "Asset Purchases" by Japan & Quantitative Easing Vows by US; "All Titles to Be Monetized" - 5 October 2010
Silver and Gold Prices leapt overnight in Asia and early London trade on Tuesday, hitting new highs vs. the Dollar as world stock markets also rose on fresh promises of quantitative easing on either side of the Pacific.
Both the central banks of Australia and Japan defied analyst expectations – and Asian Gold Dealing "finally saw a little volatility" said one Hong Kong dealer – by failing to raise and by slashing their interest rates respectively.
Overnight rates were left at 4.50% by the Reserve Bank of Australia.
The Bank of Japan cut its key lending rate from 0.1% to 0.0%, and opened the door to a new round of money creation by establishing a new "asset purchase program" worth an initial ¥5 trillion ($60bn).
Most critically, notes Diapason Commodities' Sean Corrigan of the BoJ's move, "They've lifted the long-standing bank note vs. JGB cap" – under which the central bank would only buy Japanese government bonds to the value of bank-notes in issue, rather than "monetizing" Tokyo's debt and "turning all titles [to financial assets] into money."
In the United States too, "QE II looks as if it is coming," says Steve Barrow at Standard Bank today, "and there's not much that [Friday's] payroll data can do about it."
"I think it is fair to say that [quantitative easing] is an imperfect policy tool," said the New York Federal Reserve's Brian Sack – head of the US central bank's bond-buying program – in a speech on Monday.
But ahead of Nov.'s widely-expected return to quantitative easing by the Fed, however, "Balance-sheet expansion appears to push financial conditions in the right direction," Sack went on, "in that it puts downward pressure on longer-term real interest rates and makes broader financial conditions more accommodative.
Speaking to college students yesterday, Fed chairman Ben Bernanke also called quantitative easing "an effective program."
Back in the gold and silver markets, meantime, "[Precious metals] had dipped briefly and quickly rebounded – a sign of a short market," says one Japanese broker in a note.
"The Bank of Japan's rate-move was the trigger that started traders' short-covering" – i.e. Buying Gold and silver to cover the bearish positions they already had in place.
Gold priced in Japanese Yen jumped this morning to a 16-week high above ¥3,567 per gram.
Australian investors looking to Trade Gold today saw the price rise 1.8% to a 5-week high of A$1385 per ounce.
"Last week's anticipated correction lower [in Gold Prices] was very short-lived indeed," says Commerzbank's Axel Rudolph in his weekly report today.
"We will therefore remain bullish," says Commerzbank's technical analyst, for as long as gold trades above last week's low of US$1280.70 per ounce.
"Projected upwards from the March low" and on a short-term view of 1-3 weeks, "$1350.50 [is] in sight."
By the start of New York trade on Tuesday, the US-Dollar Gold Price stood above $1331 per ounce, some 15% higher from the low hit in late July.
Elsewhere on Tuesday, Silver Prices jumped to fresh three-decade highs above $22.40 per ounce, adding almost than 3.1% during the first 3 trading days of October alone.
Major-economy government bonds held flat overall, while Japanese stocks rose 1.5% and European equities added almost 1% on average.
Crude oil rebounded to $82 per barrel, while the broader commodity markets also rose.
Buying Gold or silver today...? Slash your costs without compromising one jot of safety by using the award-winning world No.1 BullionVault now...
Adrian Ash runs the research desk at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, Adrian Ash was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern and FT Deutschland; Italy's Il Sole 24 Ore, and many other respected finance publications.