(by Chris Hamilton)
Yen weakness is relative dollar strength is gold weakness…or said otherwise in the land of the blind, the one eyed man is king. If the correlation hasn’t become obvious by now…the carry trade around the Yen and the BOJ’s plan to depreciate or bust seems to have rather outsized impacts across the market spectrum. My interest is the relationship of gold and the Yen. Seems the weakening of the Yen is driving the price of gold…down. Of course the Yen’s weakness is conversely the dollar’s relative strength…but from ’09 and particularly since Japan’s December 2012 turn to “Abenomics”, Gold and the Yen have moved tick for tick. The more Yen Japan prints, the farther the price of gold falls…ahhhh the irony that gold, the finite measuring stick of infinite currencies, seems now only to be measuring the depths TPTB will go to hide currencies relative worth!
Note in the chart below the relatively mild dollar movement vs. the strong correlation of gold vs. the Yen…particularly gaining strength since the onset of “Abenomics” in late 2012.
Dec ’09 til Present, the Yen and Gold make a pretty good mirror image of one another.
And the mirror image is becoming more tightly defined since the Dec ’12 initiation of Abenomics.
And my best “ruler extrapolation” if this trend were to continue (see below)…
I can’t say whether this relationship is the work of derivatives or long / short pairs or some other means. The mechanism(s) may be debatable, the durability of paper vs. physical in question, but the relationship is undeniable that the Yen is the anchor sinking gold’s price…until it isn’t??? But something makes me believe Japan’s desire to debase will bring about asymmetric and/or non-linear responses by nations being harmed by Japans currency-palooza. In short, something is likely to break and soon.
Japan’s currency depreciation is effectively China’s, South Korea’s, and other exporter’s currency appreciation. And today’s losers take actions to be tomorrow’s winners…affectionately known as the race to the bottom. When China, Saudi Arabia, Russia, and many others are simultaneously reacting to currency wars the asymmetric or non-linear reactions may not be far off.
Not just Gold…How about Silver or Oil???
While the gold predicament may be better known; Gold’s split personality little brother, silver, (half precious metal and half industrial metal) and Oil (100% industrial) are showing the unmistakable and unsustainable signs of manipulation. Silver nor Oil production (see charts below) are reacting to record demand and higher prices with production increases in kind. Both show stalling or falling production despite record demand and quadrupling of prices.
The current fall in Silver, Gold, and Oil prices will only increase demand while production continues declining…likely coinciding with the next great global QE efforts and currency wars to combat the global economic slowdown. The seeds of the next and greatest supply / demand discrepancies are sown…how this will be dealt with is really the only open question? Free market price discovery or further manipulation and obfuscation?
This article written by Chris Hamilton can be found at Charlesbiderman.com.
Please check back for new articles and updates at the SRSrocco Report. You can also follow us at Twitter, Facebook and Youtube below: