Japan Election Somewhat Bullish for Gold Prices

Japan's election results are seen as bullish for gold, said analysts. The Liberal Democratic Party, who won a comfortable majority in the upper house of parliament, now has control of both chambers. Their economic plan has been to target inflation through extremely loose monetary and fiscal policies and private investments.

By Neils Christensen
7/22/2013 @ 1:29PM
Forbes

Although Japan’s election results are seen as bullish for gold, it will only have a secondary effect on the yellow metal, said analysts.

On Sunday, Japanese election results showed that Prime Minister Shinzo Abe’s ruling coalition won a comfortable majority in the upper house of parliament. The Liberal Democratic Party now has control of both chambers, which some analysts have said is a strong mandate for the government to continue to move ahead with its economic reforms.

Abe’s economic plan, dubbed “Abenomics,” has been to target inflation through extremely loose monetary and fiscal policies and private investments. Although the inflationary pressures are positive for gold prices, most of the focus still remains on what is happening in the U.S. economy.

“The election result is not bearish but I think in the bigger world it won’t have much of an impact,” said Michael Widmer, metals strategist at Bank of America Merrill Lynch. “The lack of inflationary pressures in the west is what’s driving gold prices.”

Matthew Turner, precious metals analyst at Macquarie Commodity Research agreed that stability in Japan’s economic policies is considered “second tier,” in the global market place.

George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures said the stability in global monetary policy is one of that factors that is helping to push gold prices higher Monday. Not only will the Bank of Japan have continued support for its aggressive monetary policy, but the Federal Reserve has been more constant with its message since the June 19 meeting, he said.

However, he said gold’s move past $1,300 an ounce is more from pent up demand as prices stabilized around $1,200.

As of 12:24 p.m. EDT, spot gold was trading at $1,334.00, up $37.30 or 2.88% on the day.

“The market has been looking for a leg up in prices in a very serious way,” he said. “Whether it’s Japan, the Fed, China, no matter where investors look they see a reason to buy gold.”

For now it looks like $1,200 appears the floor in the market as there doesn’t seem to be much left that could drag markets lower, said Gero. He added that one of the only things that might drive gold lower is less demand in Asia or other countries targeting gold to improve their balance sheets similar to what is happening in India.

On July 10, the Bank of Japan released its monetary policy statement, which said it’s seeing some signs of improvement in the economy after aggressive bonding buying program was announced in April. For the first time in two years the central bank used the word “recover” in its statement.

“With regard to the outlook, Japan’s economy is expected to recover moderately on the back of the resilience in domestic demand and the pick-up in overseas economies,” the central bank said in its statement.

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