CENTRAL BANK INSANITY: The More Yen Japan Prints, The Lower Price Of Gold…Until???

(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 fallsahhhh 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.


Yen Gold #1

Dec ’09 til Present, the Yen and Gold make a pretty good mirror image of one another.

Yen Gold #2

And the mirror image is becoming more tightly defined since the Dec ’12 initiation of Abenomics.

Yen Gold #3

And my best “ruler extrapolation” if this trend were to continue (see below)…

Yen Gold #4

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.

Yen Gold #5

Yen Gold #6

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.

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18 Comments on "CENTRAL BANK INSANITY: The More Yen Japan Prints, The Lower Price Of Gold…Until???"

  1. Yen weakness is dollar strength is paper gold weakness is physical gold strength due to phyz buying in China after yuan devaluation to catch up on the yen.

    Fixed it for you.

    • “physical gold strength due to phyz buying…”

      Not only gold, but silver also. That’s if you find any at quantity to buy! Or someone to sell it to you!

  2. Always “soon”, but it can be years away…

  3. as the comment above reminds us, “soon” can be years away. However, things are getting dicey all over the globe. The wreckoning will be sooner than later.

  4. Hi!, Patrons Of SRSOROCCO Report Et. Al.:
    In my opinion those of you who enter these markets believing that inflation is rising prices and that deflation is falling prices; based upon currency fluctuations have a deeper lesson to learn. The lesson is that inflation arrives only when the amount of currency in circulation against the number of goods available rises. This has been stymied lately by the banks absorbing QE which means that the currency does not reach general circulation…..yet…..until interest rates rise to a level necessary to award the banks lending out money compared to their present stock of Treasury Bills & Bonds. Once the money goes into circulation which invokes the banks’ Fractional Reserve policies 10X ballooning the money supply through the economy, then the attendant price rises confer the feeling among consumers that inflation is in effect on a large enough scale to believe that inflation is in force. This is yet to take place and so government statistics regards the present US inflation rate via the Consumer Price Index (CPI) is reported as tame. However, any signs of deflation occurring will in all likelihood invoke additional rounds of QE in my opinion. Actual deflation by dictionary definition is none other than the opposite of inflation meaning the amount of currency in circulation implodes providing consumers less currency with which to purchase goods flooding markets whatever those markets may be. As we presently have lagging wages (meaning less currency in the hands of OUR consumers) to thoroughly compensate consumers for their labor pressuring a rise in the minimum wage etc. (which has not yet arrived for consumers to spend), we have a counter cycle in the economy we may name as a form of stagflation with neither inflation nor deflation predominating the economic picture at present but things can change fast. All my opinions of coarse.

    RUSS SMITH, CA. (One Of Our Broke, Fiat Money States)

  5. Russ I don’t believe the story that all QE is being absorbed….. QE has been buying not only our debt, but the stock market and manipulating the Forex market……. None of those operate in a glass dome…… Since all markets are now manipulated, those very markets are being driven by QE…… Since we know we are printing upwards of 10’s of $Trillions to “control” everything there is no way you can verify some of it is not finding it’s way into the public’s pocket. Yes, the top 10% can’t spend it all but I have a $100 Million NY flat for those that will spend it.

  6. Buy YCS to offset gold holdings, and buy DXJ for profit. Eventually, gold will be released. Until then, this is a wise strategy.

  7. BTW, good article and this correlation I’ve noticed but I agree with the article: how long does a B.S. correlation last when the fundamentals of gold get more disconnected as the trend has continued. Indeed true, what happens when this trend ends?

    It is probably because the banksters have taken off for the day, but the Yen is significantly weak today and gold is taking off.

  8. One last thought: the Yen crash alonside the gold crash could be telling us what is going to happen when the Japanese experience hyperinflation. Could be a complete rush toward the dollar, U.S. assets, and a crash gold to sub 1000 on massive short term dollar rally.

    So going long YCS is a must if you own metals.

  9. The issue as I see it, is that many still view the PM’s as an investment.
    PM’s should be viewed as a store of wealth, not an investment.

    If an oz of gold will purchase the same amount of goods today as it did 60 yrs ago, then it will purchase that same amount of goods in the future.
    Will Rogers said he was more concerned with the return of principal than the return on principle.

    One should make their money by producing more than they consume and store the excess in PM’s for future consumption.

    INMO the problem with the stock mkt is that folks for yrs have viewed it as a speculative vehicle on the price of stocks rather than a long term investment in the production of goods and services.

  10. “One should make their money by producing more than they consume and store the excess in PM’s for future consumption.” Notice that there was nothing mentioned about going in Debt in this profound Statement…Sacrifice a little more, as Debt cost you interest on top of inflation and it is money you could have invested in something that made money or at least held its Value. After all it your money and you had to earn it, and Time Multiplies this either way you chose to go….In other words – Save more, consume less and only go in debt when absolutely necessary and then only for the amount interest you are willing to deduct from your retirement nest egg’s future. Personally I never owned a new car and bought houses and shops that could be paid for in 5 years and then steeped up a size for 5 more years when I wanted a nice house or shop. Do the math and you will see that it leaves much more money for your retirement. Or don’t and just deal with retirement when you yet there. Maybe the government will still make money to carry idiots and you can continue to live at some level.

    • No mention of debt because debt can be used in various ways.
      Consumer debt does perform as you said; however business debt for an asset which produces more than the rate of inflation and interest can be a valuable tool.

  11. Frank, the trades you describe are getting very crowded. Everyone loves the dollar and everyone REALLY hates gold/miners. I’ll take the other side of your trade. I, in fact added miners last week and this week am adding S+P shorts……… Hey, that’s what makes a market, right ?

    • Well, I agree they are crowded. However, I have no doubt the Japanese will experience hyperinflation. What happens to the dollar as Japan hyperinflates? Does it really weaken? Doubt it. When Japan prints while the U.S. doesn’t the speculators go long the U.S dollar and short metals as Japan exports deflation to us. It may be currently overbought…..and I definately see a short term bounce in the metals, but after the bounce go long YCS and DXJ to hedge against the metals.

      The miners are dirt cheap and haven’t been this cheap in history. But the U.S. might try to nationalize them as they all go B.K. with gold under 1000, and if the Govt. is willing to nationalize Fannie and Freddie they will certainly nationalize the gold miners to get ahold of the gold they desperately need.

      In other words, when the Govt. agenda is on the other side of every trade…..be very careful. It’s why going long the DXJ is the most obvious trade of all time. The Nikkei is going to skyrocket in the coming hyperinflation. What gold or the miners do in dollars terms under that scenario is an open question.

  12. It works (YCS) until it doesn’t work. It has gone parabolic in the last 2 weeks. We all know (I hope) that is unsustainable. There are a dozen other countries (hint China) that will not except imported deflation from their nearest neighbor……. Frankly (excuse the pun), I see Japan falling hard soon. The US also. Courtesy of China and Russia. You know, the guys that make the rules now.

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