Gold closing in on yen price record

2012-NOV-26

Precious metals made strong gains on Friday, largely as a result of weak volume at the Comex futures market in New York. Thanksgiving last Thursday meant fewer participants in US futures trading on Friday, with traders taking the opportunity for a long weekend. Lack of liquidity in a market exacerbates any up or downside move; in this instance, it was the bulls’ lucky day.

Gold needs to hang above $1,740 and silver above $34 if this move is to have any lasting significance. Bulls will be encouraged by trading this morning though, with the metals holding above these levels despite more uncertainty about whether or not European finance ministers (meeting today) will agree to dispense more aid to Greece. The EURUSD, copper, the FTSE All-World equity index and US Treasury yields are down, yet gold and silver are still hanging in there – with silver in particular showing impressive resilience considering the pressure on growth assets.

Day-to-day price moves come and go, and there is often little logic to them. Last Friday was a case in point: bad news about EU budget talks coincided with a surge in the euro against the dollar, which is the opposite of what we’d normally expect. Long-term trends are however more identifiable, and one particularly interesting longer-term trend to look at right now is the Japanese yen’s performance against gold, as done in a chart courtesy of the GotGoldReport.

Gold has clearly broken out of a period of consolidation versus the yen, with Japanese politicians seemingly at last convincing the markets that they mean what they say when they state they want a much weaker yen. Priced in yen gold is now within a whisker of its all time high around ¥146,000 per ounce.

Another event that Western analysts may pay too little attention to is confirmation that Turkey has been using gold to pay for Iranian natural gas – thus neatly sidestepping US-led sanctions against Tehran. The idea of “gold as money” may be an alien concept in the modern West, but not in Asia. The new podcast interview we are releasing today with Amphora Commodities’ John Butler – author of The Golden Revolution: How to Prepare for the Coming Global Gold Standard – may be worth listening to in this regard.