Investing.com -- Gold inched up on Friday in spite of a broadly stronger dollar, as the greenback surged against the yen after the Bank of Japan spooked global markets by approving a negative interest rate policy for the first time in its history.
On the Comex division of the New York Mercantile Exchange, gold for February delivery traded in a tight range between $1,108.80 and $1,118.60 an ounce before settling at $1,117.00, up 1.10 or 0.10% on the session. Gold remains near three-month highs from Thursday's session, when it surged above $1,125 to reach its highest level since November 3. The precious metal is on pace to end January up by approximately 5% on the month.
Gold likely gained support at $1,058.50, the low from December 31 and was met with resistance at $1,162.00, the high from Oct. 29.
On Friday, the Bank of Japan lowered its rate offered to commercial banks that park excess reserves at the central bank to negative 0.1% in a somewhat shocking move aimed at helping its economy stave off threats of deflation. By pushing rates into negative territory, the BOJ is in effect penalizing commercial banks for not lending aggressively by charging the institutions for holding excessive reserves at the central bank. With Friday's decision, two of the top three central banks in the world are now offering rates in negative territory for the first time ever. The BOJ's unprecedented move follows a similar policy implemented by the European Central Bank in 2014.
Many economists view the move as a desperate attempt by the BOJ to bolster persistently sluggish inflation. While Japan's annual Core CPI rose modestly by 0.1% in November, it marked the first time the figure increased in five months. Japanese Core CPI, which strips out fresh food prices, remains significantly below the BOJ's 2% price target.
Following Friday's announcement, the yen plummeted against the dollar falling by as much as 2.1% on the session. At session highs of ¥121.68, USD/JPY swelled to its highest level on the new year.
As a result, the U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, soared more than 1% to an intraday high of 99.88. The dollar remains near a 12-month high from December, when the index eclipsed 100.00.
Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.
From a long-term perspective, the policy move by the BOJ could prove to be bullish for gold. The dovish stance from the Japanese Central Bank could persuade the Federal Reserve to delay further tightening measures, as other top global economies continue to show signs of weakness. On Wednesday, the Federal Open Market Committee (FOMC) left its benchmark Federal Funds Rate unchanged between 0.25 and 0.50%.
After a historic rate hike by the Fed in December, the U.S. central bank has indicated it could raise short-term rates as much as four times this year.
Any rate hikes in 2016 are viewed as bearish for the precious metal, which struggles to compete with high-yield bearing assets in rising rate environments.
Elsewhere, the U.S. Commerce Department's Bureau of Economic Analysis said Friday that U.S. GDP in the fourth quarter grew at a rate of 0.7%, below consensus estimates of a 0.9% increase. Analysts expected the pace of economic growth to slow from 2.0% gains in the third quarter, amid soft holiday sales results.
Silver for March delivery gained 0.033 or 0.23% to 14.265 an ounce.
Copper for March delivery added 0.009 or 0.46% to close at 2.066 a pound.