A few days ago when gold had made that tremendous pop up, I mentioned to my friends some things regarding the Japanese Nikkei stock market, Yen and gold. To be perfectly honest I have no idea why the hell there is this relationship. But for some reason, there is this crazy relationship. So, today I thought I would show some visuals so you can see it, too.
Here is the Yahoo chart for the Nikkei and the Yen. The lower line is the YEN (FXY ETF). As the Nikkei rises, the Yen goes down. It’s an inverse relationship.
Now, we’ll superimpose the Yen to GLD. And you’ll see the two track eachother. Why does it do this? I HAVE NO IDEA!!!
Will this keep up? To be honest, the Japanese economy is on life support. And as time progresses, the Japanese situation just gets worse and worse. Will this tracking continue?
Now finally, we have to ask ourselves, if the Japanese economy is in such bad shape, what does the future hold for the Nikkei??
Fortunately, for us, we have a long a long term chart for the Japanese stock market (Nikkei). As you can see, the overarching trend shows the Japanese stock market to TANK. From its (recent) peak of about 21,000 all the way down to 10,000. That’s a 50% loss.
What this is telling us is that gold will rise with the value of the Yen. And the rise in gold will be absolutely stunning.
Finally, one final chart of the Japanese Yen and the UUP (exchange traded dollar ETF). As you can see, the Yen and the USD have an inverse relationship. As the Yen strengthens, the dollar weakens, thus driving up the price of gold.
And this is why I was able to tell my friends the good news before the markets even opened.
I just read an article that was posted on Lance Robert’s website http://realinvestmentadvice.com/weekend-reading-should-i-stay-or-should-i-go/
It’s an article on the Japanese Yen and its affect on the USD. I’ll quote the pertinent sections of the Barron’s report (to see the entire article do a google search on the title of the article “The Dollar Is Weakening: Commodity Bulls Rejoice”):
The U.S. dollar index is a basket of currencies weighted by trade between the U.S and other countries. As such, its composition is roughly half weighted to the euro. Normally, that gives charts of the dollar index and the euro a mostly inverse relationship. The euro, however, has not made a technical breakout move from its own pattern. It is the Japanese yen, with its 13.6% weight, that is now driving the dollar index.
Trends in currencies, once they get started, tend to persist, sometimes for years. The yen last peaked in 2011, so last year’s bottoming followed a four-year bear market. Before that, it rallied from 2007 to 2011, also four years.
I do not want to suggest that there is another three or more years to go in the current rally, but it does seem that resistance for the yen ETF at the $97.00-$97.50 area is a reasonable upside target. The ETF traded at $90.87 Monday afternoon.
The most important takeaway is that because all of these currencies – both major and emerging – are in rising trends, it is the U.S. dollar that is weak. Only the yen now exhibits true strength on its own. Domestic interest-rate policy will be of keen interest to everyone as it directly influences the flow of capital and hence the demand for dollars.
The takeaway from the article is that the JPY will indeed be the catalyst for driving the USD down in value for the next several years (and gold upwards).
But like I mentioned earlier to my colleagues there is no telling how long this will last.
I am of the opinion that the Yen will continue to rise….until it doesn’t.
If the Yen can maintain its upward projection, it can do this for another three years….it is an axiomatic fact that markets can move higher far longer than you could possibly expect them to – the same with currencies... this will take us to….2019. And this…is the beginning of the end…