Gold price rises to 4-month high after Bank of Japan’s surprise policy tweak

Gold prices rose above the key $1,800 level on Tuesday as the US dollar dropped after the Bank of Japan’s surprise policy tweak, while markets continue to weigh the outlook for the Federal Reserve’s interest rate strategy.

Spot gold jumped 1.5% to $1,814.22 per ounce by 11:30 a.m. ET, its highest since mid-August. US gold futures also gained 1.5% to trade at $1,824.50 per ounce.

[Click here for an interactive chart of gold prices]

Earlier in the day, the Bank of Japan shocked global markets with a surprise tweak to its bond yield control that allows long-term interest rates to rise more, a move aimed at easing some of the costs of prolonged monetary stimulus.

Stock markets tanked following the BOJ decision, while bond yields spiked, and the yen surged to a four-month peak against the dollar.

Lifting bullion’s appeal among overseas investors, the US decided to review its own yield curve control policy. On the day, the US dollar index was down by 0.7%.

The new US spending bill is putting more pressure on the dollar, with gold prices rallying based on more liquidity being injected into the system, said Jeffrey Sica, chief executive officer of Circle Squared Alternative Investments, in a Reuters report.

The US Congress was moving forward with a $1.66 trillion government funding bill, scrambling to pass a measure.

“I see that it’s going to be a dark shadow on the gold market, but I still think we’re headed for an upside based on all the chaos,” Sica added, referring to the prospect of the Fed continuing to raise rates.

“Gold is being given another chance to shine thanks to the dollar’s pullback,” said Han Tan, chief market analyst at Exinity, adding that “the next leg down for the dollar should send spot gold onto a new cycle high past $1,824.50.”

“Traders and investors should keep the precious metal well bid going into 2023, as markets brace for the prospects of a US recession and the accompanying Fed pivot,” he predicted.

Fed Chair Jerome Powell last week said the US central bank will deliver more interest rate hikes next year even as the economy slips towards a possible recession.

Bullion has shed more than $260 since its March peak as central banks around the world stepped up efforts to fight soaring inflation.

Uncertainty remains

Despite the latest price surge, gold’s outlook remains murky heading into 2023.

“On the chart, $1,800 continues to be a tricky area for buyers which already faced a reversal back in August… (but) for now, it looks like the path of least resistance continues to be higher,” said Daniela Hathorn, a market analyst at Capital.com.

According to Matt Simpson, a senior market analyst at City Index, the “prospects of a higher terminal Fed rate could prevent gold enjoying a runaway rally next year.”

Meanwhile, China continues to grapple with surging covid-19 cases, and the World Bank has now cut its growth outlook for this year and the next for the top bullion consumer.

“If China brings back restrictions and if that were to happen over the holiday period, it is the perfect catalyst for large moves (in gold) to the downside,” Simpson added.

(With files from Reuters)