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The Yen Value of Gold in The Future Will Soar (more than in other currencies)

June 19, 2013

Indubitably the future  price of gold will rise in all currencies, but the increased Yen value will leave other currency gold prices in the dust.

Here's why!

Since 1990 until 2012 Japan’s government has maintained a monetary policy of A STRONG YEN. Unfortunately, this has been a policy that has wrought much economic ruin upon the Land of the Rising Sun.  Here is a graph demonstrating the Yen strength since 1990 vs the US dollar Index.  During the past 23 years the Yen value has risen +50%, while the US$ has fallen nearly -13%.

The grossly erroneous policy of a STRONG YEN has wrought unbelievable damage to the Nippon economy. Firstly, the NIKKEI Stock Index has relentlessly fallen -65% during the period, while the Yen soared +51% -- effectively, the NIKKEI lost  more than -1% for nearly +1% increase in the Yen’s value :


Secondly, Japan who once dominated the global export markets for electronics, cars and TVs has lost out to its international competitors (who kept their currencies at reasonable levels).  But especially China with cheap work force and low valued Yuan/Renminbi literally stole away Japan’s heretofore global export dominance.

And lastly, a Yen too dear since 1990 prevented Yen gold investors from taking full advantage of the secular bull market that began in 2001.  Since 1990 the US$ price of gold has soared +237%, while the Yen value of gold has risen only half that amount (ie +124%).  Shown on the same graph is the Yen rising +50%, while the US$ Index lost -13%.


A new government in Tokyo has emerged, which has finally come to its senses in realizing that a  YEN TOO DEAR was the foremost factor in stifling the nation’s economic growth and which caused a 20-year long bear market in stocks (NIKKEI STOCK INDEX).  Japan’s new Prime Minister Abe Shinzo understands international business, and has instructed the Bank of Japan to implement Quantitative Easing Policies to lower the value of the Yen with a view to provide stimulus to the country’s deflationary  economy.

Prime Minister Abe Shinzo Resume:

Since PM Abe assumed power, the Yen has fallen more than -14%, while the US$ is basically flat.


The ramifications of PM Abe’s ‘New Weak Yen’ policy will reap the following benefits in the next few years:

-    NIKKEI Stock Index will soar

-    Japan will slowly regain lost export markets

-    The Yen price of gold will surely rise at a faster and higher percent rate than gold valued in other currencies.

Gold Price Forecast

I do NOT believe the US dollar is the sole driver of the gold markets.   Perhaps from time to time, but the gold markets now behave more like currency markets.  The price of gold in Japanese Yen may well produce the highest percentage gain in next few years.  Also rest assured that while Tokyo lowers the Yen value,  Beijing will not sit idly…but will most assuredly lower the value of its Renminbi  in a competitive maneuver to keep its export markets.  

IMHO the predominant drivers fuelling the price of gold to yearly new all-time record highs will a falling Yen value and China’s dire need to diversify its lethal FOREX RISK…Recall China has $3.3 TRILLION in Total Foreign Reserves (with less than 2% in gold) – Furthermore,  China’s Total Foreign Reserves enjoy a compound annual growth rate of +26%  -- the highest CAGR in the entire world.

To be sure, where gold goes…so will the price of silver follow – and in spades as history is testament that the “poor man’s gold” is much more volatile that the shiny yellow -- upside as well as downside – as the graph below demonstrates.  From the birth of this secular bull market (2001) to its 2011 peak, gold appreciated 550%, while silver went ballistic up 965% (more than double gold’s rise).  However, both gold and silver have substantially corrected since the 2011 peak.

Money Supply And Its Impact On Currency Valuation

One of the primary factors determining whether a currency is STRONG or WEAK is the growth of its Money Supply (M2).

Since 2002 to 2013 Japan's M2 has had an average growth rate of 2.5% per year.

Since 2002 to 2013 USA's M2 has had an average growth rate of 8.7% per year.

EFFECTIVELY, the Money supply of the US is growing more than 3 times faster than Japan's M2. Ergo, Japan's Yen has heretofore enjoyed a STRONG CURRENCY status for this period. And inversely the US$ has been a WEAK CURRENCY.

However, all this is changing in Japan due to its QE policy under PM Abe. During the first 6 months of 2013, the US Money Supply increased 1.1%, whereas Japan's M2 is nearly double at 1.8%. Ergo, Japan is printing money via QE twice as fast as in the USA. Consequently, the price of gold in Yen will wise much faster and further than in US$ long as Japan maintains its present inflationary policies via deployment of QE with a view to stimulate economic growth and increase the value of the NIKKEI Stock Market Index.

Sayônara until gold tops $3,400 and silver $88/oz

18 karat gold is 75% pure gold.
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