Gold Technical Report: Gold had a nice rally yesterday as the prices on an intraday basis made a low near 200 DMA at 1785 and rebounded strongly. The rally was strong enough to stride the important psychological 1800 mark. The Medium term support stands at 50 DMA @1728 below which the trend may turn bearish. The short-term Stochastics Oscillator is at 66 and the Relative Strength Index is at 60.
Silver Technical Report: The silver prices, parallel with gold prices performed a good show of strength yesterday. The medium-term trend looks up as the prices continue to trade above 200 DMA @21.18. As 50 DMA @21.15 is poised to cross above 200 DMA on daily charts, further fire-up in the rally is expected. However, some technical profit booking can be expected here if the crossover fails. The Short term Stochastics Oscillator is at 68 and the RSI momentum is near 63.
Fundamental Report: The Bank of Japan’s surprise decision that they would raise their benchmark interest rate cap from 0.25% to 0.50% sent ripples through the global financial markets. Since 2016 the Japanese Central Bank has set its target range for the yield of 10-year Japanese government bonds near zero, with a cap of 0.25%. As other major central banks began to enact interest rate hikes this year the BOJ maintained its cap on its benchmark rate near zero. According to Reuters News, “The Bank of Japan shocked markets on Tuesday with a surprising 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…But the central bank kept its yield target unchanged and said it will sharply increase bond buying, a sign the move was a fine-tuning of existing ultra-loose monetary policy rather than a withdrawal of stimulus.”
Governor Kuroda said that the change was introduced to improve bond market functioning, and it’s not an interest rate hike. But the net effect is the increase in the interest rates, just as the BoJ would hike them. Nevertheless, officially, the BoJ remains very dovish. However, the shift could signal slow unwind of the yield curve control and ultra-low interest rates. In reaction to the Bank of Japan’s surprising shift, the yen strengthened against its major peers by over 3%. As American-Japanese yield differentials improved modestly, the yen surged to a four-month peak against the dollar. The move by the BOJ astounded financial markets globally. The value of the Japanese yen rose dramatically to a four-month high against the U.S. dollar which in turn resulted in strong gains across-the-board in the precious metals. Gold gained approximately 1.73%, silver gained 5.14%, palladium gained 3.79%, and platinum gained 2.53%. There is a positive correlation between yen and gold – and, thus, also between yen and silver. It makes sense that when the yen strengthens, the US dollar weakens, which supports the precious metals market.