Gold and Silver Respond to Chinese Data and the BoJ

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Gold prices are holding around the $1610 level and seem to be range bound between $1600-1620, this morning showing a little strength after the Bank of Japan rate decision. While the BOJ kept interest rate unchanged, traders had expected BOJ to defend 1% inflation target, but it refrained from providing stimulus which might appreciate the JPY and thereby gold.

The Japanese bank’s interest-rate target was kept in the range of 0% to 0.1%, with the size of its asset-purchase program also maintained at 70 trillion yen ($89.3 billion), as expected.

Still, the Bank of Japan said it would proceed with monetary easing “in a continuous manner by steadily increasing the amount outstanding” of the asset-purchase program that is currently in force.

Global central banks easing expectation stayed more intact after Chinese inflation cooled for the fourth straight month providing room for more policy losing.

Australia surprised traders this morning when it added 14000 jobs to take the unemployment rate at 5.2%. The Australian dollar rose above four months high. Since gold shares a positive correlation with the AUD, prices were supported.

Chinese data is what markets are waiting for and could have major effects on precious metals. This morning China released its CPI which surprised markets showing that inflation in China is declining more than expected. PPI on the other hand slightly disappointed. China will be releasing all of its economic data for July between today and Friday, with Trade Balance due next.

 From the economic data front, the US jobless claims are expected to increase as unemployment rose to 8.3% recently while trade deficit may also improve for June since dollar is seen on a rising mode. So a mixed impact could be seen as the former relate to a positive sense with gold while the later may support dollar.

Moreover, since BOJ refrained from more easing, the yen could be appreciated which may again pressurize the dollar. 

While the AUD, Japan easing and Chinese Silver futures prices have also gained at the early trading after Chinese inflation cooled for the fourth straight month. Asian equities rose anticipating China to follow policy easing

Silver would have been supported for the same reasons as gold, although industrial metals could be supported by strong Chinese data and a positive jobs report in the US.  So a mixed impact could be seen as the former relate to a positive sense with gold while the later may support dollar. However, stronger equities trading through the European session could be supportive for the metal pack

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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