14-Mar (USAGOLD) — Gold remains choppy within the recent range as markets await policy decisions by the BoJ and the Fed this week. However, safe haven demand amid broad market uncertainty continues to underpin the yellow metal.
The BoJ will announce policy on Tuesday. While further easing is likely in the future, consensus suggests the BoJ will hold steady at this meeting as they continue to assess the incoming data, following the January surprise rate cut into negative territory.
If the BoJ follows the lead of the ECB and takes rates deeper into negative territory, that could trigger the next leg higher in gold. In a weekend Bloomberg article, the manager of Japan’s largest gold retailer indicated that demand has been robust since the BoJ deployed NIRP.
“Many customers are wagering that it’s better to turn their savings to gold as a safe asset rather than deposit money at banks that offer low interest rates,” he said in a phone interview last week. — Takahiro Ito, chief manager at Tanaka Kikinzoku Kogyo K.K.
It stands to reason that moves deeper into negative territory would further spur demand. Last month, JPMorgan said “The move from a perceived ‘low and rising’ real interest rate environment to a ‘low and falling’ scenario would be supportive for gold.” I suspect this is true in other regions and countries were NIRP prevails.
“We can vouch for a jump in U.S. demand after Janet Yellen advised ‘we wouldn’t take those [negative rates] off the table.'” — USAGOLD’s Michael J. Kosares
As for the Fed, even Jim Rickards now thinks the Fed hold steady. He had been maintaining the Fed would likely stick with its guidance and tighten in March and June before they are overwhelmed by grim economic data.
“Clearly the Fed will not be hiking rates this week.” — Jim Rickards
He comes to this conclusion for the same reason I did: The market is positioned heavily for steady policy, and the Fed is typically disinclined to roil markets with a surprise.
I think the ECB bazooka last week means there is little incentive for the Fed to widen the policy divergence by raising rates again. The divergence continues even if the Fed sits on its hands.
On top of all that, U.S. inflation data and retail sales come out ahead of the FOMC statement. Median expectations PPI, CPI and retail sales are all negative. Again, not the kind of data typically associated with a rate hike.
Share
