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Abe's Victory and Gold

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On Sunday, Abe won the snap election in Japan. What does it mean for the gold market?

Over the weekend, the general election to Japans House of Representatives took place. The Liberal Democratic Party coalition won, gaining 284 seats, while the Komeito got 29 seats. It means that the ruling coalition won 313 seats combined and will keep its two-thirds super majority in the lower house of the parliament.

The results are negative for the gold market. Abes triumph indicates that we will see a continuation of very accommodative monetary policy. Abenomics would keep downward pressure on the yen. It provides support for the U.S. dollar, which is usually bearish for the yellow metal. As wepredicted earlier this month , the greenback appreciated against the yen after the results were revealed, while the price of gold declined, as one can see in the charts below.

Chart 1: USD/JPY exchange rate from October 19 to October 23, 2017.

USD/JPY exchange rate from October 19 to October 23, 2017
Chart 2: Gold prices from October 20 to October 20, 2017.

Gold prices from October 20 to October 20, 2017

Abes triumph is not the only factor behind the short-term dollar strength. The renewed hope about tax cuts and rising speculation that Trump could nominate a more hawkish person than Janet Yellen as the next Fed Chair will add some fuel to the greenbacks rally (we write about it more in the recent edition of theMarket Overview ). Another reason is political turmoil in Spain, after the central government outlined measures to take control of Catalonia. The only rescue for gold may now come from the ECB. The bank holds its monetary policy meeting on Thursday. The ECB is expected to announce more details on the winding down of its bond-buying program. If Draghi sounds more hawkish than expected, the euro may gain, which could support the price of gold. However, even if this happens, it could be not enough to counteract the positive sentiment towards the U.S. dollar emerging from progress towards tax reform and expectations of a more hawkish Fed from February 2018 onwards. Stay tuned!

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Thank you.

Arkadiusz Sieron, Ph.D.
Sunshine Profits Gold News Monitor and Market Overview Editor

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About the author

Arkadiusz Sieron is a certified Investment Adviser. He is a long-time precious metals market enthusiast, currently a Ph.D. candidate, dissertation on the redistributive effects of monetary inflation (Cantillon effects). Arkadiusz is a free market advocate who believes in the power of peaceful and voluntary cooperation of people. He is an economist and board member at the Polish Mises Institute think tank. He is also a Laureate of the 6th International Vernon Smith Prize. Arkadiusz is the author of Sunshine Profits’ monthly Market Overview report and daily Gold News Monitors, in which he keeps subscribers up-to-date regarding key fundamental developments affecting the gold market and helps them prepare for the major changes.

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