Japan has every reason to turn to gold

Japan cannot afford to give up its efforts to ease the exchange rate and has every reason to turn to gold, like it has been doing in 2013, says Julian Phillips.

Price Drivers

The Italian government has collapsed, due to a hormone deficiency. The fourth government in 3 years holds no more promising prospects than the last few. Some days it is difficult to think of the E.U. as a unified bloc. They may be united by a currency, but remain very separate as nations. If they do not recover economically as a whole, then Europeans will return to buying gold as they have done through the economic crisis since 2008.

While attempts by Japan to ease their exchange rate, through policies to encourage inflation alongside a horrendously growing Trade deficit [primarily due to energy imports replacing nuclear energy] the exchange rate has stabilized at Y102 to the U.S. dollar. We believe they cannot afford to give up these efforts and do see the exchange rate moving down to 120 to the U.S. dollar over the year. This gives the Japanese every reason to turn to gold, which they have been doing in 2013. 

There were sales of 5.641 tonnes of gold from the SPDR gold ETF [GLD] but none from the Gold Trust, which left their respective holdings at 795.610 tonnes and 163.63 tonnes. These sales restrained the gold price at levels lower than expected but could not break the gold price down. However, we look at where strong support lies and it is between $1,250 and $1,290. This is the second sale of around 5 tonnes in the last week, after a month of no sales, so they appear to be from a ‘stale bull’. Once again we say that, once these sales are complete, this source of supply is removed from the market, a market where daily supply is around 12 tonnes a day, excluding U.S. sales. So when U.S. sales comes in with 5 tonnes and fails to squash the price we see just how robust demand is over $1,300 an ounce.   

Please note that the gold price in the euro is moving slowly up, but with such small moves, a slightly stronger dollar shows the fall in the gold price in dollars while it was stronger in the euro. This highlights the point we made yesterday of the relationship between the euro and the dollar.

Silver – The silver price is showing more strength than gold at the moment. 

Julian Phillips is the founder of and


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