By Deborah Levine and Barbara Kollmeyer, MarketWatch
SAN FRANCISCO (MarketWatch) — Gold futures pared gains on Wednesday, after the Bank of Japan announced a surprise boost to its asset-buying program, supporting the U.S. dollar.
Japan’s move puts it in lockstep with recent moves by other major central banks, raising the risk of currency debasement, which sends investors towards hard assets like gold as a protective hedge.
Gold for December delivery GCZ2 +0.11% rose as high as $1,781.80 an ounce earlier. It lately gained $3.50 to $1,774.70 an ounce.
The Bank of Japan said Wednesday it would increase the size of asset purchases by 10 trillion yen ($126.7 billion) to about ¥80 trillion, in response to a slowdown in its domestic economy.
The move comes days after the Federal Reserve announced its own plan to pump more money into the U.S. economy. Read: Bank of Japan adds to stimulus
“As central banks around the world pull together to provide stimulus and growth to the markets, currencies are at risk of devaluing, and as a result of this gold has climbed to its highest level in more than six months,” said Max Cohen, financial trader at spreadbetter Spreadex Ltd., in emailed commentary.
Investors have recently pushed gold higher on the view that it works as an inflation hedge against that stimulus and potential devaluation of currencies.
The dollar index DXY +0.06% , which tracks the greenback against six major currencies, rose to 79.247 compared with 79.226 in late North American trading on Tuesday. Read about dollar, euro.
“With central banks globally back in monetary-expansion mode, metals as a whole are likely to remain upbeat amid expectations of renewed demand,” said James Moore, a research analyst at FastMarkets.com. “However with each round of QE having less and less impact, individual metals will likely be more sensitive to fundamental factors.
“While we expect the general trend across the metals to be higher, we expect sharp correction and higher volatility to be more common,” he wrote in a note.
On Tuesday, Charles Evans, president of the Federal Reserve Bank of Chicago said that the Fed may need to launch another round of asset purchases, owing to possible economic pitfalls ahead.
Gold finished the prior session up 60 cents, or less than 0.1%, to end at $1.771.20 an ounce.
Three key factors
“Central-bank moves will be a strong support structure for the current range that gold is in, and I feel that they are part of the ‘holy trinity’ of factors that will see gold continually edge upwards in the future,” said Austin Kiddle, director of Sharps Pixley, in emailed answers to questions.
He said three main factors affecting gold are continuing dollar devaluation, most recently due to Federal Reserve quantitative easing; global political tensions that drive investors to seek safe havens, and a rise in production costs for gold. “Mark Cutifani, CEO of AngloGold Ashanti said they are running at about $1,200 on costs for one ounce of gold,” said Kiddle.
Along with gold highs, silver traded at levels not seen since early March. The December contract SIZ2 -0.28% slipped a penny to $34.68 an ounce. It reached an intraday high of $35.02 an ounce earlier in the European session.
Copper for December delivery HGZ2 +0.66% , meanwhile, was trading at levels not seen since May, up 2 cents, or 0.6%, to $3.81 a pound.
Platinum was steady after a selloff the prior day linked to news that the multi-week strike at Lonmin PLC UK:LMI +1.54% was ending after the company signed a wage agreement with workers. October platinum PLV2 -0.09% rose $1.20 to $1,637.30 an ounce, after giving up $36.30 Tuesday.
Palladium for December delivery PAZ2 +1.01% rose $8.05, or 1.2%, to $675.40 an ounce.
Deborah Levine is a MarketWatch reporter, based in San Francisco.
Barbara Kollmeyer is an editor for MarketWatch in Madrid.
