Bank of Japan Policy

With the United States off on holiday yesterday in celebration of Martin Luther King Day, the precious metals markets were understandably tame and range bound. In the overnight session, the Bank of Japan attracted attention with a few noteworthy headlines: BOJ doubles its inflation target to 2%, BOJ shifts to open-ended asset purchases, and BOJ will introduce open purchasing from January 2014. Due to the 2014 start date, the JPY actually rallied. It has been in a steep decline for the past three months and it gained some necessary footing so far today. The precious metals reacted positively to the inflation target headline and the open-ended asset purchase statement. Gold is currently on the highs of the day and its near term area of resistance is at $1,700, a level it has challenged, but not decisively broken through, in three of the last four trading sessions. The $1,700 figure is also proving to be a significant resistance target for platinum which has been trading at near parity to gold in the last week. Platinum has failed at $1,700 multiple times in the past few days but with the situation continuing to deteriorate in South Africa, it should break higher. On the fundamental front, India raised its gold import tax by 2% to 6%. Considering that imports of gold sit second in value to only oil in India (one of the few, if not only, countries on the planet to have gold imports be so high relative to other commodities), this new tariff is of particular interest. Gold demand has proven to be largely inelastic in India and it remains to be seen whether or not the government’s intention of reining in gold demand is curbed with the new tariff increase.