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BoJ Goes BIGby Peter A. Grant
Apr 04, AM 
Gold remains under pressure as more easy monetary policy in Japan and increased dovishness in the tenor of ECB President Draghi weighed on the yen and euro respectively, buoying the dollar in the process. The dollar index rose to a new 8-month high, contributing to gold's drop to new lows for the year.While the latest talk about a phased withdrawal of QE here in the U.S. has also weighed on gold, today's events suggest the age of easy money is going to persist for some time to come. Most notably, the Japanese central bank is going big in the battle against deflation. The BoJ announced today that they would significantly expand its accommodations with the goal of generating 2% inflation within two-years, doubling the monetary base and its JGB purchases over the same period. Newly appointed BoJ governor Haruhiko Kuroda called it a “new dimension in monetary easing." Indeed! Reuters called it "the world's most intense burst of monetary stimulus." The FT reported, "While he did not scatter money from the back of a Toyota, he came about as close as a central banker might dare." This is the policy equivalent of going "going all-in." Given that the Japanese economy is about a third the size of the U.S. economy, the Fed would have to do a $4 trillion stimulus to equal the magnitude. If the BoJ still fails to generate the desired inflation — keeping in mind that Japan has been playing the QE game for more than twenty-years — its pretty damning evidence that quantitative easing doesn't work. Is the next step to throw yen from the back of Toyota? And then again, what if it DOES work? Does that open the door for the U.S., UK and Europe to take measures of similar magnitude? Not surprisingly, the yen collapsed by more than 3%. Does the central bank that boldly goes where no one has dared go before win the currency way? Does anyone really win a currency war? In other monetary policy news: The BoE held steady on both rates and asset purchases. The ECB held steady on rates, but President Draghi had a decidedly more dovish tone in the press conference. Draghi said the ECB would remain accommodative as long as necessary while highlighting downside risks to growth. This intensified speculation that rate cut may be in the offing, perhaps as soon as May or June if the data remains weak. The euro fell to a new low for the year against the dollar at 1.2744 during the presser, but then rebounded smartly, establishing new highs for the week back above 1.2900. The rebound in the euro is being attributed to a large bid from a semi-official name, as well as options related activity. There is also probably a general reluctance to press long dollar positions ahead of tomorrow's jobs report, particularly in light of today's much bigger than expected claims print. Keep in mind that the era of zero interest rate policy and extraordinary central bank accommodations has been a huge contributing factor to the secular bull market in gold over the past dozen years. Not only is it now clear that this era is not coming to an end any time soon, but the BoJ at least has significantly upped the ante. At the low end of the year-plus long range, gold seems like a bargain. NEWSLETTER SIGN-UP Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here. |
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Thursday April 4
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