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Gold Rebounds from $1940 with Softer US Inflation Data, “Bullish Signal” Declared as Price Targets Best Month in Four

GOLD BULLION rose on Monday after bouncing off the $1940 per ounce level last session which some analysts called ‘a bullish signal’, with key inflation data from the US pointing to a faster pace of disinflation, eyeing the best month in four in most of the major currencies as gold in Japanese Yen hit an all-time high,  writes Atsuko Whitehouse at BullionVault.
Gold priced in Japanese Yen climbed 1.5% to an all-time high of ¥9023 per gram as the currency of the third largest economy softened further on Monday after the Bank of Japan (BOJ) surprised global financial markets on Friday by announcing “greater flexibility” in its monetary policy and bond yields rose to 9-year high on Monday.
“The yen has weakened further to the mid-142 yen range, with the yield on 10-year JGBs exceeding 0.6% and the BOJ supplying funds through a purchase operation to curb any further increases in long-term rates,” tweeted Bruce Ikemizu, chief director of Japan Bullion Market Association.
Gold prices in the US Dollar rose on Monday afternoon by 0.5% to $1968 per ounce, after cutting its weekly loss to 0.1% last week, following data on Friday showing the Federal Reserve’s preferred inflation gauge rose at its slowest pace in more than two years in June.
The yellow metal looks like it will consolidate monthly gains of 2.5% on a month-end basis, which is the biggest since March, when prices climbed with the mini-crisis in US regional banking.
Gold month end price: Source; BullionVault via LBMA, St Louis Fed
“Gold has a technical support level at around $1940, and as it held this level despite the sell-off last week, some see the rebound shown after factoring in the strength of the US economy and other factors as a bullish signal,” said Koichiro Kamei, a financial and precious-metals analyst in his latest report.
The Personal Consumption Expenditures price index (PCE) without energy and food prices continued decelerating in June to 4.1% from the year before, according to data released Friday. In May the core PCE rose 4.6% annually.
That put it at a nearly two-year low. It's still far above the Fed's 2% target, however.
“The inflation outlook in the US is pretty positive,” said Neel Kashkari, president of the Federal Reserve Bank of Minneapolis on Sunday.
Gold priced in Euros meantime also rose 0.3% this Monday afternoon to €1783 as the Euro strengthened in FX markets with the latest data showing Eurozone inflation falling in line with expectations to 5.3% in July after the single currency bloc returned to growth in the second quarter.
On a monthly basis so far, the yellow metal for European investors is still up 1.2% in July, the best month in four.
"The second quarter GDP figures for France, Germany and Spain are quite encouraging," Lagarde told French daily Le Figaro on Sunday. 
The latest data from Eurostat published on Monday showed the eurozone economy rebounded with growth of 0.3% in the second quarter, despite the European Central Bank increasing borrowing costs by a combined 4.25 percentage points in a year, its fastest pace on record.
Lagarde, however, stressed no decision has yet been made about what the ECB will do at its next meeting in September 2023 and stated "Inflation must return durably to its target (2%)."
The UK gold price in Pounds per ounce went up by 0.5% to £1533, heading towards a 1.7% monthly gain, ahead of the Bank of England’s policy meeting this Thursday.
In Japan, the BOJ loosened its yield curve control, allowing 10-year Japanese government bond (JGB) yields to fluctuate within the range of 0.5 percentage points either side of its 0% target — but it will offer to purchase 10-year JGBs at 1% through fixed-rate operations. This effectively expands its tolerance by a further 50 basis points. 
The central bank however kept its overnight interest rate, which would remain minus 0.1 per cent — Japan is the only country in the world to maintain negative rates — while calling for more time to settle at its 2 per cent inflation target.  Headline inflation in Japan has already risen to 3.3% in June.
Japanese government bond yields jumped on Monday with the benchmark yield on 10-year JGBs rose to a nine-year high at 0.61% before falling back to 0.59% after the BOJ announced unscheduled purchase of ¥300 billion ($2.1 billion) in five-to-10 year government bonds.
Gold prices in Japanese Yen rose just under 1.5% for July and 17.3% so far this year, which is more than double of price increases in other currencies. 
Ten-year US Treasury yields – a benchmark rate for government as well as many finance and commercial borrowing costs – edged higher at 3.9%, after paring its gain above 4% early morning, which was seen last Thursday when US data blew past analyst forecasts for the world’s largest economy.
"A broad-based and longer-lasting economic contraction would be needed to revive the rally and to push prices to record highs," Carsten Menke, head of Next Generation Research at Julius Baer, said.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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