New From Paul Mylchreest

Thu, Dec 4, 2014 - 10:15am

Longtime Turdites will recall that Paul Mylchreest is an excellent metals analyst. His latest report explores in great detail the ongoing link between the price of gold and the value of the Japanese yen which, as you know, is a theme we've already been following here for months.

This is a lengthy and detailed summary and it is chock full of terrific information about the gold--yen link, the global gold "market" and GOFO/backwardation. Please take the time to scroll through it and thank you to Paul for sharing it!


Nikkei Gold Danger

About the Author

turd [at] tfmetalsreport [dot] com ()


Dec 4, 2014 - 10:22am

First again?

What's up with that?

Dec 4, 2014 - 10:27am


writes great stuff, thanks!

Dec 4, 2014 - 10:31am


The third turd?

Dec 4, 2014 - 10:36am


Anyone know a good way for a guy to short the Nikkei and go long gold in an old fashioned stock/options trading account?

Ignoring of course they can keep this going for a long time.

Dec 4, 2014 - 10:38am

Excellent Report!

Thanks for posting this Turd. I'm about half way through and actually following most of it. Mylchreest does a great job laying this out in a very readable and easy to understand fashion.

Dec 4, 2014 - 10:43am


Google works really well:

Short NKY and use the funds to go long PHYS

If you mistyped about short Japanese stocks vs Japanese currency then you would short FXY instead of NKY...

Dec 4, 2014 - 11:01am

Again as I said before yen carry trade vs gold

Its the yen carry trade and the derivatives that are so much more lucrative that is the detriment to gold as the cash from the yen carry trade is exponentially better but when it reverses it will be explosive to the reverse.

Dec 4, 2014 - 11:06am

If this is all true

Which I don't doubt in the slightest, then the snap elections in December will carry huge implications for the markets. Should Abe lose, then you could see an epic unwind of this pair trade.

I'm just trying to wrap my brain around the components of this. Long NKY, short gold.

XAU/USD short

NKY/USD long

But there is a step in the middle where you convert Dollar to Yen.

XAU/USD short



I have just confused myself, but I think that is right.

Dec 4, 2014 - 11:27am

Great Read!

I would suggest everyone make the time to take it in.

Good Luck All...


Dec 4, 2014 - 11:39am

Question for the brain trust

Am attempting to wrap my head around this and around SBHorse's comment... but I don't get something in the text.

Paul says "We question whether entites which have put on this long/short trade have acknowledged that a rapid exit from a large short position in gold could be problematic. If so, we wonder whether a short position in gold is being partially hedged by accumulating long positions in (high beta) silver".

If this is true and has been happening, then why has the gold/silver ratio grown so exceptionally high over this time? If these entities, as Paul says, were hedging gold shorts by going long silver, shouldn't the G/S ratio have moved markedly in the other direction? It just seems to me that actual price movement undermines this thesis... am I missing something?

Dec 4, 2014 - 11:48am

@ Pining 4 the Fjords

Could explain the rising OI in silver as price has fallen

Pining 4 the Fjords
Dec 4, 2014 - 11:56am

Excellent pont, Pining

Perhaps I can get an answer from Paul on this.

Dec 4, 2014 - 11:58am


You may be right, but again I am confused... Paul is arguing that it is the banks working this trade, right? So if they are taking out new contracts (longs) in silver to go long as a hedge against their gold shorts, when who takes the other (short) side of that trade? Every contract must have an issuer to go with a buyer, who is issuing all those silver contracts? The same banks who are supposedly going long? This makes no sense to me.

And again, wouldn't part of Paul's thesis be 1. big short pressure on gold, and 2. lots of longs in silver to hedge... and wouldn't the G/S ratio be falling due to this pressure, rather than rising as it has?

Still confuses me, I am clearly missing something here.

Edit- thank you TF! I would love to hear what Paul has to say, if you can get him to comment

Dec 4, 2014 - 12:04pm

It all makes perfect sense!

Move along. Nothing to see here..... LOL!

Also look to where the 5 year forward inflation expectation rate is now: 2.18%.

Aug 2010: 1.8%. Fed spigot opened. Oct 2011: 2.0%. Again. June 2013: 2.2% Again.

What're they going to do now?

Dec 4, 2014 - 12:25pm

Possible hedge in silver

This is Paul who wrote the report. Thanks for including me Turd. Let's also speculate whether the bank which is the ringleader in the Nikkei/Yen v. Gold trade is different to the one tasked with holding down the silver price. The former might be able to gradually accumulate a long in silver knowing that as long as it doesn't disturb the price, e.g. buys into weakness, the screen price of silver will be taken care of. This would help to explain the bloated OI versus gold and the rise in ETF silver holdings. Can't prove it though. Cheers, Paul

Dec 4, 2014 - 12:30pm

@ ThunderRoad

h/t for all the great stuff in this report and numerous previous ones I've read, thanks again!

Dec 4, 2014 - 12:34pm

My pleasure

My pleasure

Dec 4, 2014 - 12:44pm


45 minutes a member...Welcome aboard!!

I have read your reports for years and have got great value from them. As an fyi, I sent out the link to your article to our clients this morning. I have always found your reports insightful and well researched.

thanks for joining up to respond to questions

Hope you stick around, this is a powerful site with great dialog


Dec 4, 2014 - 1:02pm

Thanks and will do, although

Thanks and will do, although I will probably be several hours ahead of most of you guys

Pining 4 the Fjords
Dec 4, 2014 - 1:08pm

@ my friend Pining

Ask and you shall receive, I guess...

Thanks Paul for your contribution to the conversation!

Dec 4, 2014 - 1:31pm

Re: Possible hedge in silver

And Uncle Ted seems to think that our mysterious banker silver long is JPM

Dec 4, 2014 - 1:51pm

What a Great Thread

Thanks All-- The shape of the current game is slowly emerging, at some point this just has to blow up on them.

Dec 4, 2014 - 2:03pm

Thank you Paul

Your reply is greatly appreciated, thank you for taking the time to come in and explain. And kudos on another outstanding piece of intriguing research! I do hope you feel free to pop in here and mix it up, on occasion.

TF- Gracias, amigo!

Dec 4, 2014 - 2:09pm

Thanks CPE

I guess I should have Googled it, but I prefer to get my stock trading advice from anonymous blog posters!

Dec 4, 2014 - 2:10pm


That truly made me lol! h/t

Dec 4, 2014 - 2:19pm

Seems to me

that the idea of a silver hedge grew out of the unusual divergence of ETFs and COMEX contract levels that we have been mystified about this past 2 years.

If the thesis is correct and this is all held together by overnight repos then any lack of liquidity (e.g. due to falling oil prices) could lead to an explosive unwinding. Who's going to be thrown under the bus this time and will the financial masters be able to paper it over yet again? If this is not contained then any possibly silver hedge will likely be irrelevant, they'll just steal bank deposits.

Definitely a thought provoking read!

Chuck Diesel
Dec 4, 2014 - 2:33pm

I just sent this research report to ZeroHedge

Tyler wrote me back immediately and said that they will do a post on it shortly. Well done Paul!

Dec 4, 2014 - 2:44pm

Who gets thrown under the bus

Good question, probably someone who deserves it either though negligence, ignorance or deserving of getting it.

If you hold physical, you don't care

This is not a flippant statement


Verus nemo
Dec 4, 2014 - 3:21pm


this is the finest, most complete explanation for the charade we've endured for nearly 3 years!

I'm not a trader so I'll not manage to (directly) 'profit' from it but have been stacking both gold and silver throughout the three year beat-down and so understanding the why and how behind the scheme is enormously reassuring to my path.

I have been watching both the lbma's gofo & glr data and watching the following charts (click through the various time durations available) now for months. Take a really close look on the 5 year chart at what was happening to AUX/JPY relative to the AUX/USD starting in about November 2012 and leading through the April 12-15 2013 debacle:

I believe that the price of gold in JPY was about to get away from them forever and we're frequently seeing the same divergences these days.

Thanks, Craig, for this outstanding site and especially for this individual post. Thanks too Paul for pulling it all together and answering questions here. I treasure this community.

Dec 4, 2014 - 3:27pm

Great report

If his thesis is correct, it seems like this will blow up at some point in the not too distant future. Makes me want to go out and buy silver.


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