(Kitco News) - The gold market is once again within striking distance of all-time highs above $2,800 an ounce as the metal continues to attract international attention. Some analysts suggest that gold’s bullish momentum is just beginning, following its achievement of record highs against the Japanese yen overnight.
Gold rallied against the yen after the Bank of Japan (BoJ) raised interest rates to “around 0.5%,” the highest level in 17 years. At the same time, the central bank signaled the potential for further tightening.
“If the outlook presented in the January Outlook Report will be realized, the Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation,” the BoJ said in its monetary policy statement.
The BoJ also warned that the “virtuous cycle between wages and prices will continue to intensify” as firms' behavior has shifted more toward raising wages and prices.
In global currency markets, gold last traded at ¥434,076.20 an ounce, up near 1% on the day. Meanwhile, the precious metal last traded at $2,783.20 an ounce,up 1% on the day.
Gold’s rally against the yen has been somewhat surprising. Higher interest rates are traditionally considered negative for gold, as they increase the opportunity cost of holding the non-yielding asset. Despite this, gold also rallied as the yen strengthened following the anticipated rate hike.
The yellow metal is exhibiting similar strength against the U.S. dollar, trading near record highs even as the Federal Reserve aims to shorten its easing cycle, potentially cutting rates only once this year. This shift in U.S. monetary policy has driven bond yields and the U.S. dollar to multi-year highs.
However, analysts note that gold has managed to defy these traditional headwinds, maintaining its status as a crucial safe-haven asset amid growing uncertainty in global financial markets.
In recent interviews with Kitco News, Dennis Gartman, a renowned commodity investor and creator of the Gartman Letter, expressed bullish views on gold due to its performance in global currencies. In a note published late Thursday, he predicted the yellow metal could reach ¥450,000 this year.
In a separate interview with Kitco News, Michele Schneider, Chief Strategist at MarketGauge, shared her bullish perspective on gold, highlighting that tightening monetary policies are symptomatic of a broader issue: inflation.
Schneider explained that the world faces a new inflationary threat, as supply issues are likely to drive prices for commodities like food and critical metals higher. For instance, significant droughts have recently pushed coffee prices back to record levels.
“This is the kind of inflation that [central banks] can't really fight because these are supply-demand issues,” she said.
Schneider added that if gold prices surpass $2,800 an ounce, they could easily rally to $3,000 an ounce.
