Gold climbed higher on Thursday after the U.S. Federal Reserve and Bank of Japan kept monetary policy intact. The fact that the fed didn’t raise interest rates in April didn’t pose much of a surprise but the inaction of the Bank of Japan caught the market off guard because we had largely expected Japanese interest rates to go deeper into negative territory. The inactions of the two central banks weakened the U.S. dollar and gold prices have been enjoying the tailwinds that come from a weak dollar.
The global gold market is moved by fundamentals in demand and supply; yet, economic policies from central banks often move the market with alarming efficacy. Mark O’Byrne, research director at GoldCore notes that “the temper tantrum in global markets today is quite worrisome as it shows how completely dependent global markets have become on the drug of cheap money from central banks including the BOJ”.
Gold soars for fourth straight session
Gold continued its bullish ascent on Thursday to mark the fourth consecutive session of gains. Spot gold was up 1.6% to settle at $1,266.50 an ounce. Gold for June delivery was up 1.3% to settle at $1,266.40 an ounce – the gains recorded on Thursday means that gold has made enough gains in four sessions to mark the highest closing price since March 10. Not to be outdone, silver was also on the move yesterday – Silver gained 1.5% to close at $17.588 an ounce to mark the highest trading price since May 2015.
On Thursday, I noted that analysts are optimistic about the prospects of gold – most of them expect gold to face strong resistance at the $1,280 price point. Interestingly, George Milling-Stanley, strategist at State Street Global Advisors notes that the gold markets might still experience pockets of volatility here and there based on strength/weakness in economic data. He, however, notes that “In the continued absence of any surprises from policy makers, the gold price could still see further gains in 2016… A price of around $1,350 by year-end could be sustainable.”
Weak dollar gifts oil with a decent boost
The cautious pose adopted by the fed and the decision of the BOJ not to weaken the Yen is causing headwinds for the USD and the fact that the greenback is struggling has lifted oil prices. On Thursday, crude oil continued its ascent – the Brent crude gained $0.93 to $48.11 per barrel to move close to its highest point since November 2015 and U.S West Texas Intermediate (WTI) Futures gained 1.5% to settle at $46.03.
The fundamentals of demand and supply have started to boost the prospects of oil because OPEC and Russia are close to finding ways to agree on a production freeze. Dominick Chirichella, senior partner at the Energy Management Institute notes “the perception view crowd are starting to call the oil market rally the beginning of what will be a long bull market… Clearly, the market is primarily focused on the forward supply-and-demand picture while continuing to push the bearish nearby fundamentals further into the background”.