gold investment, silver investment

arkadiusz-sieron

Central Banks’ Recent Actions and Gold

March 24, 2017, 6:08 AM Arkadiusz Sieroń , PhD

Last week was really hot in central banking. Everyone focuses on the Fed, but other major central banks also held their monetary policy meetings. What can we learn from them?

There was a flurry of central bank meetings last week, but major central banks remained reluctant to follow the Fed’s hike. Let’s start with the Bank of Japan, which kept policy on hold early Thursday. Although the BoJ noted that the economy was in a moderate recovery trend, it kept its short-term interest rates at minus 0.1 percent. It also maintained the cap on 10-year bond yields and the asset purchase program at about ¥80tn a year. That decision means that the BoJ stuck with its ultra-loose monetary policy, despite the Fed rate rise. Hence, that decision underlines the global divergence in monetary policies among central banks. The Fed is definitely more hawkish, which should strengthen the U.S. dollar against the Japanese yen in the long run – it is bad news for the gold market.

Other central banks also kept their interest rates on hold. In particular, both the Bank of England and the Swiss National Bank voted to hold interest rates unchanged (there was one dissent at the BoE meeting) – it means that the SNB retained its negative interest rates, while the BoE left the bank rate at a record low of 0.25 percent, set after the Brexit vote. And Norges Bank, i.e. the central bank of Norway, maintained its key policy rate unchanged at 0.5 percent.

The only exception among these doves was the People’s Bank of China, which increased the rates it charges in open-market operations by 10 basis points and on its medium-term lending facility just a few hours after the Fed’s move. It’s not a big shift, but it indicates that either Beijing wants to hit the brakes or to stabilize its currency.

The take-home message from the last hot week in central banking is that the divergence among central banks widened. The Fed hiked the third time, while other central banks kept their interest rates unchanged. It means that the U.S. central bank is outpacing its global peers, which should provide support for the greenback in the long term, being a headwind for the yellow metal. However, the waning expectations of Trump’s fiscal stimulus – and the decline in stocks – are now an important bullish driver for gold prices.

If you enjoyed the above analysis, we invite you to check out our other services. We focus on fundamental analysis in our monthly Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. If you’re not ready to subscribe yet and are not on our mailing list yet, we urge you to join our gold newsletter today. It’s free and if you don’t like it, you can easily unsubscribe.

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

Gold News Monitor
Gold Trading Alerts
Gold Market Overview

Did you enjoy the article? Share it with the others!

Gold Alerts

More

Dear Sunshine Profits,

gold and silver investors
menu subelement hover background