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Gold Firms, Most Notably Versus Yenby Peter A. Grant
Feb 04, AM 
Gold is modestly better against the dollar as the new week begins, but has set another round of new 32-year highs against the yen. The yen fell to fresh 34-month lows against the greenback as the perception that the BoJ caved to political pressure continues to weigh heavily on the yen.You may recall that Japan's new Prime Minister had threatened to nationalize the central bank if they weren't forthcoming with monetary policy that he deemed was a serious attempt to check deflation. They subsequently doubled their inflation target to 2% and essentially pledged unlimited asset purchase toward that end. This triggered the unwinding of safe-haven yen trades, while simultaneously reigniting interest in the yen as a funding currency. The yen carry trade fell out of favor during the global financial crisis that began in 2008, when risk appetite evaporated and investors turned to the yen as a safe-haven. In today's environment of improved risk appetite and a central bank and government set on debasing the currency, the yen is no longer a haven. Additionally, borrowing yen at ultra-low rates and then converting (selling) those yen to other currencies and buying risk assets is suddenly back in vogue. In a world where most of the major economies of the world are desirous of a weaker currency, BoJ policy of late has simply stolen the show. Or perhaps more importantly, it is the loss of central bank autonomy. The notion that politicians now have their hands on the monetary policy levers, is understandably disturbing. And speaking of politicians mucking up the works: Twin scandals in Spain and Italy have suddenly brought the European debt crisis back to the fore. Spain's Prime Minister Marion Rajoy has been implicated in a slush fund scandal, undermining confidence in himself and his Popular party. The opposition parties and voters are outraged and the resulting political uncertainty has caused Spanish yields to surge. Meanwhile in Italy, the scandal surrounding the bailout of Monte Paschi bank and derivatives trades that were seemingly designed to hide the dire situation at the bank, seems to be widening. The leader of Italy's Democratic Party has close ties to Monte Paschi. Peier Luigi Bersani, who has been leading in the polls ahead of the upcoming general election has seen that lead narrow recently. Again, the resulting uncertainty has forced yields higher. NEWSLETTER SIGN-UP Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.
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