Friday morning saw a nice bump for the gold price, which rose about 0.5% to trade above $1,341/oz on the last trading day of July. The spot silver price also received an early boost, but subsequently gave up these gains to trade near $20.10/oz.
The main headline was the decision by the Bank of Japan (BOJ) to stand pat on its monetary policy overnight.
Most indications were that the BOJ would choose to expand its economic stimulus, especially after Prime Minister Shinzo Abe announced a plan for a round of fiscal stimulus (i.e. government spending) that would total an ambitious 28 trillion yen. This was expected to be accompanied by another overhaul of the bank’s monetary policy tools. The fiscal plan will need to be approved by the Japanese parliament in October.
BOJ Governor Haruhiko Kuroda and his team did not seem to agree. Instead, the central bank chose to leave its policies unchanged pending a “comprehensive review of its policy framework” at its next meeting at the end of September.
However, the BOJ will go ahead with new purchases of ETFs totaling about $26 billion, and Kuroda maintained that policy changes will be pursued in the future as needed. In response, the yen rallied nearly 2% against the dollar, settling near ¥102.75 per USD. The country’s Nikkei 225 and Topix stock indices both advanced.
The other big piece of news on Friday morning was the release of second-quarter GDP numbers in the U.S. Analysts and traders alike were disappointed by the announcement that the U.S. economy grew by just 1.2% during Q2, less than half of what was expected. It was slightly better than the 0.8% advance for GDP during the first quarter.
Joseph LaVorgna, the chief U.S. economist at Deutsche Bank in New York, characterized the situation as a bit of a paradox between consumer sentiment and business investment. “Consumer spending looks good, but the problem is that the rest of the economy is soft. The economy remains vulnerable to downside risks.”
LaVorgna added, “The Fed is right to be cautious.” Indeed, the disappointing number will likely put a damper on any hawkishness from the Federal Reserve over the next two months. Of course, this is the initial GDP estimate for Q2 and will undoubtedly be revised upward or downward in August and September when more data is available.
In addition to the downcast outlook for growth in the U.S., the euro area economy also slowed down over the last quarter, expanding at just 0.3%—half of the 0.6% growth experienced during the prior three-month period. The cool-down is being somewhat attributed to the uncertainty wrought by the Brexit vote, but the slowdown was broad-based: France, Austria, Spain, and Germany all saw their GDP growth stall.
Interestingly enough, inflation in the eurozone saw an uptick—although to just 0.2%. Nonetheless, this meager rise in inflation is the strongest acceleration since January. All of this economic data continues to be supportive of gold.
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