It feels a little
callous writing about Japan with respect to precious metals after the country
suffered such a terrible tragedy. However, I think it's worth discussing because
there's a lesson in it for all of us. In fact, I think the moral could be
couched in terms of a warning.
Japan's Background with Precious
commonly known in Japanese culture that citizens harbor gold to protect
against unforeseen events. The gold isn't sold unless it's needed for an
emergency. With respect to the Japanese government, the country's central
bank is the 8th largest holder of the metal (including the IMF and GLD).
Beyond investment, Japan represents about 6% of worldwide gold fabrication
(excluding investment demand), the majority of which is in electronics. Scrap
recycling has been heavy in recent years, while jewelry demand is low.
silver, the tiny island represents about 9% of global demand. Industrial uses
comprise the biggest part of that, which includes the automotive industry,
construction, medical uses and solar. Jewelry and silverware have minimal
end-use, and photography, like most everywhere else, has been falling
Japan's Trend with PMs
the percentage of Japan's buying to worldwide demand won't drastically change
in reaction to the recent disasters, they, like several other countries, are
pursing another tactic to get minerals. The government is considering
revising its mining law, specifically when it comes to seabed mineral
exploration and extraction. This is noteworthy because Japan hasn't touched
its mining law in 50 years. To be sure, revisions will be stricter for
permitting and monitoring, but the process will be streamlined for Japanese
now? As an executive at Mitsubishi Materials put it, "it's an issue of
national interest" because China, Russia, and South Korea are already
exploring parts of the country's exclusive economic zone. They are
undoubtedly feeling the pressure of not only wanting what they think is
rightfully theirs, but also of wanting to capitalize on high metals prices.
The Lesson from Japan
for gold and silver there have risen in response to the disasters, which
isn't surprising. Japanese investors scrambled for physical metals after the
earthquake, immediately pushing premiums to three-year highs. And it wasn't
just buyers in the earthquake, tsunami and nuclear-plant zones; those in less
affected parts of the nation have been rushing to buy precious metals, too.
The end result is that available supply has been glutted.
reactionary buying in Japan could not just support metals prices, but push
them higher. This is certainly due to the draining of supply, but also
because it's complicating delivery and exacerbating fabrication problems. The
country is a net gold exporter, but there may not be many planes and boats
loaded with bullion leaving ports anytime soon, given that many modes of
transportation are down and the distribution of more urgent food and other
supplies is complicated.
could dry up gold supplies elsewhere in Asia, as Japan exported 2.7 million
ounces last year. While this is only roughly 2.3% of global supply, these ounces
are concentrated in Asia, a region that has already seen many countries'
citizens hoarding precious metals. If supply becomes scant across Asia, it's
easy to see how this could light a fire under prices.
Mark Pervan, head of commodities research at ANZ,
said, "This is a buy-on-the-dip opportunity. Investors,
not just Japan but globally, have been looking for a trigger to get back into
the market. The rise in premiums in Japan could be it."
lesson is this: When disaster strikes, it's almost certainly too late to buy.
Not only will you pay a higher premium, you may have difficulty getting your
hands on bullion. You have to purchase your insurance before adversity hits.
the warning is this: We saw how supply dried up and premiums skyrocketed during
the market meltdown of 2008. Europe saw the same result when Greece imploded.
We're now seeing it happen in Asia due to Japan's woes. We keep seeing this
picture repeat. While no one wants to bet on calamity, is the U.S. really
immune from trouble? Are you?
if no natural disaster strikes North America, there's a certain hazard that's
inescapable at this point. The abuse being heaped upon the U.S. dollar has
not fully played out. Sooner or later the decline of the mighty greenback
will affect almost every area of your life. In fact, what does your day
involve that doesn't require money? Eating, showering, driving, working,
shopping, entertainment - all of these will be grossly impacted by the demise
of the currency unit used in this country.
monetary base continues to explode. With no fanfare, it set another new
record last week - $2.35 trillion. It's up 18.7% just since New Year's eve,
and 39.2% since December 2008. These actions will have consequences. They
will lead to a monetary earthquake.
heart went out to the people of Japan when you saw the pictures of the
devastation from the earthquake. Will you be ready when the currency
earthquake hits here? One of these days it'll strike, and then it will be too
late to buy.
hope you have sufficient asset protection to withstand the monetary storm
that's building off our coast.
[That asset protection is easy to
come by – by loading up on gold, silver and large-cap precious metals
stocks that can weather any economic storm. And in the meantime you’ll
make handsome returns… like the 90.4% gains Jeff secured for his
mom’s IRA, and his subscribers’ portfolios. Read
more on how he does it and how you can profit.]