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How Did the Bank of Japan’s Decision Impact Gold?

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Aug. 2 2016, Published 2:57 p.m. ET

Bank of Japan’s stimulus

Gold remained comparatively steady on July 29. This continued into Monday’s trading session. Gold futures for December expiry increased 0.42% and closed at $1,357.5 per ounce. It touched the day’s high of $1,362—the highest price during the past two weeks.

Gold likely took directions from the important global news that came out on Friday. The Bank of Japan was set to provide more stimulus to its economy. However, most investors saw it as just a small tweak to the policy. It expanded stimulus by increasing ETF purchases. However, it didn’t change its Japanese government bond purchases. Even with the little stimulus added, the Japanese yen gained against the US dollar.

[marketrealist-chart id=1502803]

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Yen and gold

The fall of the US dollar gave some additional breathing room for precious metals. The above chart shows a comparative performance of the Japanese yen and gold. The performance of the yen is depicted by the Guggenheim Currency Shares Japanese Yen Trust ETF (FXY), while gold’s performance is illustrated through the SPDR Gold Shares (GLD).

Correlation

The above chart shows that gold and the yen might track each other’s performance closely. They could take similar directions. The likely changes in these two indices could be in the same direction due to their relation to the US dollar. The Japanese yen and gold both have a negative correlation to the dollar. They both benefit from a decline in the US dollar.

However, the Bank of Japan’s decision was beneficial for gold investors. Alongside the rise in gold, silver and platinum also rose 0.77% and 1%, respectively, on Friday.

In the next part, we’ll look at the relationship between gold and the US dollar.

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