Gold Holds, BOJ Move Extends Stimulus Rush

September 19, 2012 at 11:52

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Gold shook off early losses to hit its highest level in 6-1/2 months on Wednesday after Japan joined the United States and Europe in mounting more stimulus measures to boost its economy, raising gold’s appeal as a hedge against inflation.

The Bank of Japan increased its asset buying and loan program, currently its key monetary easing tool, by 10 trillion yen ($127 billion) to 80 trillion yen with the increment aimed at purchases of government bonds and treasury discount bills.

Efforts by Japan, and before that the Federal Reserve and the European Central Bank, to spur economic activity via bond purchases should weaken currencies and lift inflation, both supportive of gold, said Jeremy Friesen, commodity strategist at Societe Generale.

“I think other central banks will announce more accommodative policies and that should continue to support gold,” said Friesen.

Gold has risen around 17 percent since hitting this year’s low of $1,527 in May, buoyed by measures by central banks to help the global economy.

The BOJ’s action aided a rebound in Asian shares, raising speculation of more big central bank efforts to support growth.

Platinum gained $17 to $1,634.49 an ounce, after falling earlier in response to news of an agreement at Lonmin’s Marikana mine that ended six weeks of violent labor unrest.

Platinum was vulnerable to a pullback due to sluggish global industrial demand, said dealers, although labor issues with the South African mining sector could also underpin prices.

Commodities slumped on Tuesday for a second day as nagging economic problems in the United States and Europe made investors cautious about the demand outlook for oil, metals and crops at prices that had spiked on stimulus efforts by central banks.

The physical gold market was subdued but dealers expected main consumer India to buy again later in the day due to the festive season there, which peaks in November with Diwali, the Hindu festival of lights.

“We saw some physical demand yesterday, but it was not great. Thailand was in the market,” said a dealer in Singapore, who offered gold bars at premiums of 20 to 40 cents.

“Demand from India is picking up. They have been buying lately, although they are pretty quiet this morning. They will possibly come back to the market today.”

Holdings of the largest gold-backed exchange-traded-fund (ETF), New York’s SPDR Gold Trust GLD rose 0.14 percent on Tuesday from Monday, while those of the largest silver-backed ETF, New York’s iShares Silver Trust SLV, remained unchanged during the same period.