Bank of Japan
April 4, 2013
Bank of Japan
Introduction of the “Quantitative and Qualitative Monetary Easing”
1. At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided upon the following.
(1) The introduction of the “quantitative and qualitative monetary easing”
The Bank will achieve the price stability target of 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI) at the earliest possible time, with a time horizon of about two years. In order to do so, it will enter a new phase of monetary easing both in terms of quantity and quality. It will double the monetary base and the amounts outstanding of Japanese government bonds (JGBs) as well as exchange-traded funds (ETFs) in two years, and more than double the average remaining maturity of JGB purchases.
Gold investors clearly saw last week’s price drop as a buying opportunity, as holdings of gold-backed ETFs hit a record highthis week (p.103). Although QE3 would support precious metals prices, it is only ‘icing on the cake’, as more important factors will likely send gold higher this year.
The recent sell-off notwithstanding, we remain bullish into 2012. While the current strength in the USD is a headwind to USD gold prices, we expect aggressive Fed action, including and the likely adoption of QE3 in 1H12, to be positive for gold, even if the USD continues to strengthen. We forecast prices will rise on a quarterly average basis through 4Q13.
In our view, the timing of the sell-off in late December suggests strong selling pressure linked to year-end book squaring, portfolio adjustments and commodity index reweighting. Furthermore, the sell-off also coincided with an especially sharp rally in the TWI of the USD, strong headwind for gold given its USD pricing and quasi-currency function.
While we expect European funding stress to continue in early 2012, recent coordinated actions by six central banks and separate actions by the ECB suggest that non-gold related measures to ease access to USD swaps will be successful, reducing downside pressure on the gold price.
Consequently, gold prices will again depend on whether the four pillars of the original bull market persist: (i) decline in producer hedging (and potentially de-hedging as a positive demand factor); (ii) the decline of DM central bank sales and rise of EM central bank purchases; (iii) the inability of gold mining companies to increase gold supplies materially; and (iv) long-term growth in physical investment demand.
Constrained new gold supply is placing greater emphasis on the increased delivery of above-ground stocks to meet demand. However, in theabsence of central bank sales, and limitations on the size of the available scrap pool, the continuation of physical demand growth from ETFs and coin sales is putting upside tension on the market, ensuring the bull market is sustained into 2012-13.
from: Morgan Stanley Global Reasearch – March 12, 2012 The Commodity Manual