Gold Gains After BOJ Policy Shift as Traders Await Fed Decision

Sibanye Gold CEO: People Bullish on Future of Gold
  • Japanese central bank seeking to make monetary policy flexible
  • Investor focus pinned on Fed meeting amid policy uncertainty

Gold futures had the biggest gain in two weeks after a shift in monetary policy fueled speculation that the Bank of Japan will continue efforts to boost economic stimulus. The move came ahead of the Federal Reserve’s decision on U.S. interest rates.

The BOJ changed its focus Wednesday from expanding the money supply to controlling interest rates, helping Japanese banks, pension funds and insurers cope in a less-than-zero rate environment. Gold also rose as a decline in the dollar boosted demand for the metal as an alternative asset.

The BOJ announcement helps reassure gold investors after a first-half rally stumbled on concern over the outlook for further global stimulus, which increases the appeal of bullion as a store of value. In the U.S., traders expect the Fed to hold rates unchanged when it announces its decision Wednesday afternoon in Washington.

BOJ “monetary policy will remain extremely expansionary, which should benefit gold,” Commerzbank AG analysts including Daniel Briesemann said in a report. “Market participants are now likely to turn their attention to this evening’s meeting of the US Federal Reserve. Like most market participants, we do not expect the Fed to raise interest rates today.”

Gold futures for December delivery added 1 percent to settle at $1,331.40 an ounce at 1:39 p.m. on the Comex in New York, the biggest gain since Sept. 6.

The BOJ also pledged to keep its monetary base -- bank cash reserves and currencies in circulation -- growing until after inflation exceeds a 2 percent target that was set back in 2013. Traders are pricing the odds of a U.S. rate hike Wednesday at 24 percent, with the chances climbing to 59 percent by December.

“A dovish FOMC announcement later today may be what the market needs to bring an increasingly stale market back to life,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S.

In other precious metals news:

  • A gauge of 14 senior global gold producers tracked by Bloomberg Intelligence rose 3.2 percent, with shares of Harmony Gold Mining Co. and AngloGold Ashanti Ltd. among the biggest gains.
  • Holdings in exchange-traded funds backed by gold fell 3.3 metric tons to 2,018.3 tons on Tuesday, data compiled by Bloomberg show.
  • Silver futures climbed on the Comex in New York, while platinum futures advanced on the New York Mercantile Exchange. Palladium was unchanged on the Nymex.
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