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Bank of Japan Stimulus Pushes Gold Higher

Written By Brian Hicks

Posted September 20, 2012

The U.S. Fed recently announced another round of quantitative easing, and the news had a marked effect on gold prices worldwide. Now, following a surprise announcement by the Bank of Japan to boost its asset-buying program, gold futures rose appreciably on Wednesday.

Gold for December delivery rose to $1,781.80 per ounce during intraday trading before settling at $1,771.70 per ounce. This occurred after the Bank of Japan declared that it would step up asset purchases by 10 trillion yen, or $126.7 billion.

From MarketWatch:

“As central banks around the world pull together to provide stimulus and growth to the markets, currencies are at risk of devaluing, and as a result of this gold has climbed to its highest level in more than six months,” said Max Cohen, financial trader at spreadbetter Spreadex Ltd., in emailed commentary.

Gold has, of course, enjoyed a nice run thanks to investors perceiving it as a relatively stable safe haven in times of economic turmoil. However, that run may be slowing down, if not altogether reversing. The dollar index slipped to 79.071 from 79.226 in later hours of North American trading just this Tuesday. And, following major selloffs in other commodities, gold futures are also set to contract. Overall, since banks around the world seem fine with going in for more monetary expansion, metals are likely to remain high and fairly stable.

Largely, the main factors that could shore up gold’s current positions would be the recent Fed-led quantitative easing, ongoing global economic problems (continuing to drive investors to the safety of gold), and rising gold production costs.

Silver, like gold, has been on a high. December contract for silver slid slightly to end at $34.58 per ounce on Wednesday. Platinum remained stable, coming just after a selloff the day before on news that a lengthy strike at Lonmin Plc (LON: LMI) had drawn to an end.