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Article / 21 September 2016 at 8:30 GMT

Gold rising on BoJ, Fed waits in the wings

Ole Hansen

Head of Commodity Strategy / Saxo Bank

Denmark

BoJ statement boosts gold prices
Dovish FOMC may bring gold 'back to life'
Silver outperforms gold post-BoJ

The news out of the Bank of Japan overnight boosted gold, but it will likely

take a dovish Fed to spark a real rally. Photo: iStock

By Ole Hansen

Gold has bounced following today's Bank of Japan meeting as governor Haruhiko Kuroda signaled a prolonged period of monetary easing with negative interest rates.

The initial weakness triggered by a stronger dollar was quickly reversed as the investment case for gold remains strong. A dovish Federal Open Market Committee announcement later today may be what investors need to bring an increasingly stale market back to life

Gold initially sold off on the stronger dollar before bouncing towards a pre-FOMC resistance zone between $1,325 and $1,330/oz...

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Source: Saxo Bank

Yesterday I highlighted how gold has increasingly gone stale over the past three months following the Brexit vote. Investors have stepped to the sidelines while waiting for a deeper correction. A double whammy of central bank dovishness from the BoJ and potentially the FOMC may be enough to bring the market back to life and help mount a fresh challenge at the key resistance level of $1,380/oz.

Should the FOMC decide, against the odds, to hike rates in order not to lose face following a host of hawkish comments in recent weeks, the market's reaction will depend on the dot plot trajectory of future rate hikes.

A zone of resistance between $1,325 and $1,330/oz is likely to prevent gold from making further advances ahead of the FOMC meeting later today. Traders are looking for a break out of the range that has prevailed for three months now. Currently the boundaries are $1,305 and $1,345/oz and given the macroeconomic environment, we view a break in either direction as a buying opportunity.

Source: Saxo Bank

Once again, silver has outperformed gold following the bullish reaction to the BoJ announcement with the gold-silver ratio falling back below 68, a two-week low, and close to support at 67.75.

Source: Saxo Bank

— Edited by Michael McKenna

Ole Hansen is head of commodity strategy at Saxo Bank

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