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Gold Price Flat in USD, Jumps in Yen as Central-Bank Policy Split Hit FX Market

The GOLD PRICE ended Friday in London unchanged for the week in US Dollar terms, rising to a new Japanese Yen record but sinking in terms of British Pounds and Euros as diverging central-bank policies spurred sharp swings in the world's major currencies.
The US Federal Reserve's decision on Wednesday to 'skip' another interest-rate rise this month saw global stock markets jump as US Treasury bond prices also rose, pushing down longer-term borrowing costs and defying the Fed's updated forecast that it will raise Dollar borrowing costs twice more before Christmas.
The Dollar then fell to 5-week lows on its trade-weighted currency index after the European Central Bank raised and vowed to keep raising Euro-area borrowing costs on Thursday, while traders bet that the Bank of England – now lagging consumer-price inflation by 4 whole percentage points – will hike by half-a-point at its June meeting next Thursday.
That left the Dollar gold price unchanged from last Friday afternoon's London benchmark auction at $1960, but the UK gold price in Pounds per ounce showed a 1.9% drop at £1529 and the Euro gold price lost 1.6% for the week at €1791.
Gold priced in the Chinese Yuan in contrast rose near May's all-time record highs, reaching ¥452 per gram in Shanghai on Friday after the People's Bank made 2 cuts this week to its key 1-year refinancing rate.
Chart of gold priced in USD, GBP and EUR, London PM Friday finish. Source: BullionVault
"Gold [in Dollars] has historically performed well when the US Dollar softens due to their strong negative correlation," said a note from Swiss banking giant and bullion-market clearer UBS this week.
With the US Fed now seen nearing the peak of its interest-rate rises while the Eurozone, UK and other Western central banks catch up, "We see another round of Dollar weakness over the next 6-12 months," UBS says, forecasting a record price of $2100 by year-end with a rise to $2200 by March 2024.
"Are we done? Have we finished the journey? No...Do we still have ground to cover? Yes," said ECB chief Christine Lagarde in her regular press conference after Thursday's Euro policy decision.
Taking deposit rates – which were negative as recently as June last year – up to the highest since 2001 at 3.5%, the ECB rate still lags consumer-price inflation across the 19-nation currency union by more than 2.5 points, despite the annual increase slowing from double digits since November.
"We will continue to hike at our next meeting [in July]," Lagarde added.
"We are not thinking about pausing, as you can tell."
"The ECB turned out to be far more hawkish than expected," Reuters today quotes bullion-market analysts Metals Focus' senior consultant Harshal Barot.
While that has helped gold prices in Dollar terms rebound from yesterday's sudden 3-month lows, it means the precious metal could now "be little bit volatile" depending on forthcoming US data.
"Having an overshoot in inflation is not desirable," said Bank of Japan governor Kazuo Ueda meantime Friday morning, leaving overnight rates at minus 0.1% and reconfirming the 0% target for 10-year Japanese government bond yields.
Against the BoJ's 2.0% aim, Japanese inflation in April came in at 3.5% per year, down from the New Year's 4-decade record of 4.3% but with 'core' inflation – excluding food and fuel – continuing to rise.
"But it is cost-push inflation," said Ueda, "which the central bank can do little about...Raising interest rates now and letting inflation slip [back towards deflation], that would be more difficult to deal with."
With the Yen sinking to new 7-month lows against even the falling Dollar today on the FX market, gold priced in JPY set a new all-time high around the London PM benchmarking auction above ¥8,900 per gram.
That has doubled the gold price in terms of the world's 3rd largest central-bank reserves currency since this point in June 2019.
With global stock markets on the MSCI World Index now gaining more than 14% year-to-date despite the rise in global central bank interest rates, "The risk-on configuration of the last few sessions is reminiscent of the beginning of the year," says analysis from French investment bank Natixis, "when the market was betting on a US soft landing, rapidly falling inflation, central banks with strong dovish potential and China reopening."
While such hopes "have disappointed on the whole" outside US growth and falling inflation, "optimism is still there, and our indicators are unanimously pointing towards exuberant levels, which [equity investors] should certainly be wary of, at least tactically."


Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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