(Kitco News) - Bank of Japan quantitative easing triggered the bull known as gold into making another uphill charge Tuesday, with traders and analysts looking for $1,350-an-ounce metal in the foreseeable future and higher down the road.

However, some also cautioned about the potential for a temporary correction lower first or at least sideways activity in the next couple of days, should traders pause ahead of key U.S. economic data later in the week that includes the monthly jobs report scheduled for release on Friday.

December gold futures on the Comex division of the New York Mercantile Exchange peaked at $1,341.70 as of late Tuesday morning, a record for a most-active contract.

Some observers said that as they left work Monday, they expected more of that session’s sideways trade, particularly since much of the week’s most important U.S. economic numbers come out in the second half of the week. But that all changed when the Bank of Japan announced plans to buy government bonds, the so-called quantitative easing undertaken by some central banks in recent years in an effort to push market-set long-term interest rates lower. The BOJ also cut its overnight rate target to between zero and 0.1% from the previous 0.1%, although some characterized this as largely symbolic since rates were already so low to begin with.

Gold shot higher around the start of the European trading day and extended its gains during New York hours. A weaker tone in the dollar added to the buying in gold, enabling the metal to break above the $1,320 region, where there had been potential for a double top to form on a daily chart, said Afshin Nabavi, head of trading at MKS Finance.

“The uncertainty everywhere globally now is causing people to choose gold and silver as safe-haven choices,” said Mike Daly, gold and silver specialist with PFGBest.

Some described the BOJ’s move as part of a trend in which central bankers and governments seem to be rushing to devalue their currencies to gain an economic competitive edge. While the yen has since strengthened against the dollar since
the BOJ easing, Japanese authorities were known to want to weaken their currency after they intervened in the foreign-exchange market earlier this fall.

Meanwhile, the Federal Reserve is thought to be considering another round of quantitative easing of its own.

“We had a chance to pull back yesterday,” said HSBC analyst Jim Steel. “There was some mild profit-taking. The market held very strongly. It encouraged fresh buying off the back of concerns for further quantitative easing.”

Daly commented that any further easing means further gold gains. “Any time you print more (money), it’s obviously worth less,” he said.

The quantitative easing also has rekindled concerns about eventual inflation when the economy recovers, some observers said. “Any time you mention inflation to a gold trader, the tendency is to buy gold,” Daly said.

Next Target For Gold Is $1,350; ‘Rally Remains Intact’

Charles Nedoss, senior market strategist with Olympus Futures, and Nabavi both listed $1,350 as the next psychological level for the market to test.

“The rally remains intact,” Steel said. “There are no signs of any diminution in the buying. QE (quantitative easing) is overwhelmingly the driver at the moment.”

Still, Nabavi and Daly described some uneasiness with current prices since there has not been a meaningful correction that analysts typically describe as healthy for any market in the longer term. Otherwise, Nabavi said, he has been bullish for some time and anticipates “much higher” prices eventually, maybe even $2,000 down the road.

“The market is pretty much a one-way street,” he said. “If we see a correction, it could be pretty harsh…But other than that, with the geopolitical situation as well as the dollar, I think gold is in for a good run toward higher levels.”

Daly said some market participants may be hoping for a price dip that they can use as a buying opportunity. Further, he said, gold could move in a sideways range ahead of U.S. economic data late in the week. The market gets weekly jobless claims Thursday, then September non-farm payrolls on Friday. “If the data is bad Thursday and Friday, we could really fly,” he said.

Leonard Kaplan, president of Prospector Asset Management, said he looks for gold, along with other precious metals such as silver and platinum, to keep rising until the Federal Reserve eventually starts to tighten monetary policy. Eventual Fed tightening could prompt a large pullback, maybe even as much as 50%, he suggested.

“But, it looks to me it looks like it goes to $1,500 to $1,800 first,” Kaplan said.

Kaplan later added: “It could be a very long time until they tighten. With the unemployment figures the way they are and with the fear of quantitative easing coming up, it’s just going to keep going.”

 

By Allen Sykora of Kitco News; asykora@kitco.com

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