Gold has surged nearly 4% in
Japanese yen this morning as the BOJ entered currency markets overnight
selling yen thereby depreciating their currency against the dollar and other
Gold is higher against all
currencies and is trading at USD 1,663.50, EUR 1,168.20, GBP 1,018.30, CHF 1,291.00 per ounce and 133,000.00 JPY per ounce.
Gold’s London AM fix was USD 1664.25/oz, EUR
1170.61/oz, GBP 1,018.20/oz. Gold reached new
record nominal highs in majors yesterday and remains close to these record
Japan has followed Switzerland in
attempting to stem the rise of their currencies by selling 1 trillion yen in
markets, pledging to inject 10 trillion yen ($126 billion) into the economy
and the BOJ increased their asset buying programme
to 15 trillion yen.
This has led to weakness in the yen
but the sharp falls seen in currency markets may also be due to concerns
about Japan’s economy and currency in the aftermath of the natural
disasters and manmade nuclear disaster. Should the US and global economy
enter recession, export led Japan is now very vulnerable.
The Japanese yen is no longer a
safe haven and this will clearly be seen in the coming months. It can also be
seen in the yen’s gradual decline against gold since 2000 (see chart).
This gradual decline appears to on the verge of speeding up.
Japanese Yen – 2 Days (Tick)
Yesterday Switzerland unexpectedly
cut official interest rates by 50 basis points to a target range of 0-0.25
per cent and announced money market measures such as purchasing outstanding
Brazil’s Finance Minister Mantega said last November that his nation’s
currency, the real, was trading at a reasonable level and announced a
“temporary truce” to a global currency war.
Japanese Yen – 30 Days (Tick)
The truce appears to be well and
truly over and the second phase of the global currency war has commenced.
Central bank currency intervention
or money printing and competitive currency devaluations have resumed with
gusto which is of course bullish for precious metals as they cannot be
devalued or debased.
What is extremely bullish is the
fact that the yen and franc are not secondary, emerging market currencies
rather they, like the dollar, have long been considered safe haven
Japanese Yen – 10 Years (Weekly)
The first shots of what looks like
the second phase of the global currency war have made UBS become even more
positive in their outlook for gold.
“The potential for additional
safe-haven flows stemming from central bank interventions in FX markets adds
a significant new dimension to our positive outlook for gold” said
UBS’ Edel Tully this morning.
“Does central bank
intervention have ramifications for gold? Without doubt, as it gives
further weight to holding real hard assets over paper assets, which are subject
As was seen in one of the 14 charts
from yesterday’s update, China’s M2 money supply has been rising by 20%, Switzerland’s by 25%, Russia’s
by 30% and the U.S. by a similar amount. Global money supply is increasing by
8%-9%. Japan’s M2 is expected to move higher after recent events.
In order to fight economic and debt
issues, paper currency has been printed at historically high levels.
Ultimately, currencies are the
stock of individual nations and currency values will be dictated by the
health of each country’s economy vis-à-vis other economies.
Value is derived from money supply
growth, GDP growth or lack of, demographics, inflation rates, education
levels, infrastructure and technology and sound environmental, economic and political
Short term market interventions, be
that in stock, bond, currency or gold markets, and artificial manipulation by
governments and or central banks will only ever succeed in the short term.
The fundamental laws of supply and
demand will in the long term dictate price and value of all assets and
Stocks or currencies that are
diluted or debased more than other stocks will over time gradually lose their
value. Today all fiat currencies are being debased which creates an increasing
risk of inflation, stagflation and in a worst case scenario –
While hyperinflation remains an
outlier ‘Black Swan’ type macroeconomic scenario - it is
imprudent to dismiss it out of hand.
With global electronic fiat
currency creation appearing to accelerate it cannot be dismissed.
Property crashes in western
economies were not predicted or expected by the majority of experts and the
majority of people. Nor were sovereign debt crisis in the US and EU. Those
who warned of these likelihoods were largely ignored and dismissed as
‘doom and gloom’ merchants.
The real doom and gloom merchants
are the Wall Street and international banks and central bankers who have
helped get the world into this mess.
It is often prudent to allow
ourselves to think the unthinkable. Real diversification makes us prepared
for worst case scenarios.
We should be prepared for worst
case scenarios but hope for and strive for more benign scenarios.
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