It's All About That Yen

Tue, Mar 31, 2015 - 11:26am

As the first quarter of 2015 draws to a close, let's take inventory of where we stand and then let's see if we notice anything interesting.

Not really sure where to start so, as MrsF likes to say, we'll take things "in no random order":

12/31/14 close Last YTD% change

GOLD $1184 $1188 +0.34%

SILVER $15.60 $16.76 +7.44%

CRUDE $53.27 $48.42 -9.10%

LONG BOND 2.75% 2.55% +7.27%

10-YEAR NOTE 2.17% 1.95% +10.14%

POSX 90.27 98.51 +9.13%

EURO 1.2096 1.0737 -11.24%

YEN 0.8345 0.8329 -0.19%

S&P 500 2058.90 2079.75 +1.01%

OK, I admit it. I tricked you. Those numbers are not in "no random order". Instead, notice the three items where I've bolded the % return numbers. Hmmm. No why would I do that? Could it be this be another exercise where Turd explains how the algos run everything?

YES! It's exactly that!

As has been documented here ad nauseam, the price of gold is now largely determined solely by fluctuations in the yen. The yen goes down, gold goes down. The yen goes up, gold goes up. Put more specifically...the dominating computer-driven algo trade is long the USDJPY and short gold. The easiest way to show this is by inverting the USDJPY chart and plotting it overlaid with gold. When you do this, you get the chart below...and it's a fair chart with the vertical axes nearly identical in % change:

On a much larger scale, The Banks and hedge funds are also running a paired trade of the yen and the S&P. The chart below shows the USDJPY directly overlaid with the S&P 500. Again, it's a fair chart as the changes in the vertical axes is nearly identical:

So, if you're baffled why "fundamentals don't seem to matter", it's because the fundamentals don't matter. There are very few human traders of size left and the computers control everything. In this environment, arcane notions such as supply/demand and company fundamentals are insignificant. The primary driver to these "markets" are changes to the USDJPY. Control that and you control everything else. With this in mind, is it any wonder why The Fed...hell-bent on driving the US stock market as high as possible to enhance the "wealth effect"...continues to give impetus to the dollar bid by jawboning about higher rates? If you and I can figure this out, you know that Mother Fellen and her Goons have figured it out, too. Talk the dollar higher and let The Machines do the rest. And lest you think that this is just a temporary phenomenon, feast your eyes on the 3-year charts below. Yen--gold on the left and yen--SP on the right:

Of course, like anything else, this "strategy" will work until it doesn't. Just as one day, whether through a Black Swan event or just a snowballing global liquidation, equity fundamentals will re-assert day, too, the paper gold market will be driven low enough that the suppliers of physical metal will be unable to clear all of their trades. This exact situation nearly broke the "market" for gold in early November of last year. London GOFO rates plunged to record low levels and, as you can see on the chart below, it was the one time where the yen--gold trading pair failed:

Though this trade has since re-asserted itself, it's no accident or coincidence that the paper gold "market" once again found a bottom two weeks ago near $1150. In the end, anyone worried about a renewed drop in gold should only be concerned with two things:

  1. Can the Bullion Banks find a steady supply of readily-deliberable physical gold at prices below $1150? Back in November, they could not and the physical market drove a rebound in the paper price.
  2. Is the yen going to make even deeper lows? As you can see on the long-term USDJPY chart below, the area just north of 120 is pretty stout resistance and without the yen making new lows, there's no impetus for The Machines to further sell gold.

So, the next time you read the doom-and-gloom predictions of some chart-reader or snake-oil salesman, please simply ignore them. Until the current system breaks, price will continue to be determined solely by changes in the USDJPY and the availability of physical gold to clear trades. At present, nothing else matters.


About the Author

turd [at] tfmetalsreport [dot] com ()


Mar 31, 2015 - 11:30am

One more chart

You may have noticed that the YTD negative "returns" of crude and the euro are nearly identical, too. Could is be that the algos have paired that trade, too? Since this chart isn't perfect, I'll let you decide:

Mar 31, 2015 - 11:32am
Mar 31, 2015 - 11:38am


read and first

Black Swan swimming

Mar 31, 2015 - 11:39am


At least I'm in the top 10. Lol

Mar 31, 2015 - 11:44am

China holiday

China's stock market closed on Monday Apr. 6.

Mar 31, 2015 - 11:47am

OI (final)

Gold -4773

Silver -441

Gold Apr 15 -13597......(7348 standing).

Mar 31, 2015 - 11:48am
Mar 31, 2015 - 11:50am

Wow another wet blanket thrown on...

Metals on the last day of the quarter ...shocker

Mar 31, 2015 - 12:16pm

CBs have broken any price discovery

They have linked Gold to Yen and Oil to Euro.

There is a probably a huge derivative market behind this move.

Cbs are controlling the price of these two vital needs by these algos.

Like Turd says, it is working until it's not.

Mar 31, 2015 - 12:33pm

usd/yen and usd/gold charts

the yen chart and the gold chart are both usd based charts

there should be a correlation in their movements relative the benchmark usd

occam's razor

aomegaa Wizdum
Mar 31, 2015 - 12:35pm

Primary Water!

Go to and watch the Youtube video on primary water. I tell ya I don't know WTF to believe any more. Maybe Gold and Oil are both primary recourses also. Maybe I'm a women!

Mar 31, 2015 - 12:38pm


Premium on physical silver through Sprott is significantly underperforming SLV. The premium for buying silver, in size via PSLV is now .40 percent. Amazing.

Tells me there is LOTS of physical metal around and not enough buyers.

Mar 31, 2015 - 12:38pm

Harvard Economics 101

2+2=5 | Two & Two - [MUST SEE] Nominated as Best Short Film, Bafta Film Awards, 2012

This film nails it on so many levels. Paul Krugman must be smiling!

Mar 31, 2015 - 12:42pm
Mar 31, 2015 - 12:43pm

"smart" meters

what other nefarious crap will happen?

Mar 31, 2015 - 12:55pm


Whichever one of you guy's pulled this little job I have one thing to say about it.


Mar 31, 2015 - 1:06pm

Great vid Dr. J!

i'd love to get that kid's take on the silver chart!

that made my day :-)

Mar 31, 2015 - 1:17pm

Dr J

Great video. 8 mins left to smack Ag senseless. Can't have it be too far ahead for Dow for end of quarter.

Mar 31, 2015 - 1:22pm

2 + 2 = 5

Been that way since 1913

Mar 31, 2015 - 1:26pm


Totally normal chart of GDXJ beginning at 1238 PM EDT. A beat down with no news and no change in the price of gold. I guess someone will write that the miners "got caught in the sell-off of the general market". This is becoming offensive. These fuckers are criminal. I think desperation has reached new heights with the smack down last Thursday to today.

Chiron Chiron
Mar 31, 2015 - 1:31pm


Sorry, price of gold commenced fall just as I was typing. Funny how GDXJ started to fall before gold was hit. It is almost as if someone knew what was going to happen. But that could not be. "Markets" are "efficient" and "completely legitimate".

Mar 31, 2015 - 2:16pm

All about that Yen, no treble

It is a very catchy tune. Can't get it out of my head.

Mar 31, 2015 - 2:21pm

Each of these pullbacks based

Each of these pullbacks based on the algos following the yen is allowing the commercials to get further net long, from what was already a bullish COT position. Hopefully we can hold these levels, because if we do, the next move up could be quite decent.

Mar 31, 2015 - 2:36pm

What The Fuck

What's going on with SilverTowne? They have just sold over 47,120 oz's ( over 1.5 tons) of Silver at spot in the last 24hrs on ebay

Do they know something we don't know or are they heading out of the business? Hope not I just splashed out $3500 on some. Lol

Mar 31, 2015 - 2:43pm

Yeah! WTF


I have also noticed that premiums seem to drop just before a smackdown--seems to be that way for several years now. But perhaps they loaded up at $15.80 and need some cash before the end of the month? Perhaps the premiums will rise back to normal tomorrow?

Mar 31, 2015 - 3:05pm

That is the best deal I've ever seen

Selling at spot with free shipping. Unbelievable.

Mar 31, 2015 - 3:29pm

They are all expecting a price decline...

Like I said a few weeks back. The biggest issue is people continue to look at gold in a vacuum. This correlation with the yen is only one of many as you can see the same correlations with the Euro, Oil, the CRB and nearly every commodity that makes up that index, plus the USD. The correlations in all of these are not perfect but generally speaking it's just as close as the Yen (What happened in January and February? The Yen dropped roughly 5% while Gold went from $1310 down to the $1140s?) None of these correlations are perfect because there's a variety of factors that drive all of these carry trades. Even if one was to admit the USD/JPY is driving Gold then the next logical question would be what drives the USD/JPY because in reality those factors are what drive the price of gold. But again, you see these correlations in all major currencies and commodities one way or another.

We saw this play out the exact same way during the depression. As the Eurozone crumbles the USD will surge and everything will come under pressure until the world wide system breaks and the USA is the last domino to fall.

PMs are going to continue to come under pressure under the dollar reverses and the dollar won't reverse until it's the last man standing just like the 1930s at which point the government may need to revalue gold just to generate inflation (as Rickards has suggested and had happened in 1934) or the monetary system will be reset in some kind of fashion in which gold will at least be revalued in a basket with other currencies.

Either way when you consider how badly the CRB has been beaten down since Oil collapsed the decline in silver and gold is not unexpected. Yes, there's a relationship with the Yen, but there's also a relationship with the Euro, Oil, the Dollar, Treasuries and whole bunch of other commodities that all relate back to the confidence in the dollar.

As the dollar continues to surge on a Euro, Yen, and Emerging Markets collapse we will see the price of oil and all commodities continue to fall in USD and the farther oil falls the cheaper it is for miners to dig gold out of the ground as it is by far their number 1 expense.

The entire "physical limit" arguments we've heard for 4 years now didn't consider this part of the equation. If David Morgan is right we're down to $14 silver and sub-1000 gold for cost of production where the price of oil is currently at. If the dollar continues to rally and crude continues to collapse the cost of production for miners will continue to significantly drop and the cartel will continue to smash price right at the levels where the miners can barely survive but hopefully do not go bankrupt.

This is why there is no end in sight for the gold and silver price collapse until the dollar reverses because the dollar will crush oil which decreases mining costs. I've maintained for a long time now that I think it will finally fall apart this fall, at which point gold and silver will decline with everything else, finally bottom, and surge to the levels we need to get the bull market started back up but I continue to advise everyone to be very cautious in buying here because the Euro situation is still unresolved and the folks at the fed are crazy enough to invert the yield curve against and crush commodities even further just to maintain the illusion and it's got to be obvious to everyone here at this point the machines don't just manipulate gold they manipulate everything.

The CRB is down 33% since July but the price of gold isn't, in fact you may say based off of the other correlations we still have a lot further for gold to fall. If gold had followed the CRB's 33% drop from the July high in both we'd be at $900 gold. Had Gold followed the Euro collapse from their July tops we'd be at $1040 - if it followed the dollar perfectly we'd be at $1070 - if it had actually followed the Yen perfectly and this correlation was absolute then the price of gold should be around $1070 (The Yen/USD was at 100 in July and Gold was at $1340) - if it followed oil we'd be in the 700s. I would say it's fairly encouraging we haven't followed a lot of these other price points exactly but others may look at that and say Gold still has a ways to fall to catch up with everything else and that's why we see dealers offering crazy prices right now.

Also consider again that if many of these miners are desperate (which at this point you could argue they are) then they will continue to sell their production forward regardless of whether they have the physical in hand and it will only act to suppress price further.

Until we get a truly physical market the miners have confidence in selling in this deflationary spiral will take gold with it because it does not trade in a vacuum and machines are crushing everything because the dollar crushes the prices of all commodities. It sucks we're going to have to go through this but it's going to be what's going to be. Once CONFIDENCE is lost in the dollar and everyone has lined up on the bearish side of gold/oil/commodities we'll reverse but as of right now neither of those things has happened and they won't happen until the other major currencies die first because fundamentals of commodities do not matter only the algo trades matter now and the physical limits we think the algos are held to won't exist if all commodities get crushed in tandem with the metals.

If you have already built up a substantial stack just understand this for what it is and just wait for the prices to become buys of a lifetime. We, unfortunately, still aren't there... imo and we will have to see a significant dollar reversal before we are and we aren't going to see that until speculators lose confidence in the USD.

Mar 31, 2015 - 3:34pm

OK but

"The CRB is down 33% since July but the price of gold isn't, in fact you may say based off of the other correlations we still have a lot further for gold to fall. If gold had followed the CRB's 33% drop from the July high in both we'd be at $900 gold. Had Gold followed the Euro collapse from their July tops we'd be at $1040 - if it followed the dollar perfectly we'd be at $1070 - if it had actually followed the Yen perfectly and this correlation was absolute then the price of gold should be around $1070 (The Yen/USD was at 100 in July and Gold was at $1340) - if it followed oil we'd be in the 700s. I would say it's fairly encouraging we haven't followed a lot of these other price points exactly but others may look at that and say Gold still has a ways to fall to catch up with everything else and that's why we see dealers offering crazy prices right now."

You're forgetting that physical gold has to be delivered at the paper price or the entire scheme falls apart. This is what stopped the decline back in November and it is what is holding gold up now.

Until and unless The Banks can find a readily available source of physical gold, price simply isn't dropping as low as you suggest, regardless of what the other "commodities" are doing.

Mar 31, 2015 - 3:47pm


Welcome back my friend, how is Colorado?

november4 TF
Mar 31, 2015 - 4:16pm

OK but

To summarize the arguments of Turd and SIM: Turd says that the computer-driven algos have paired the price of gold to the yen; SIM that the price of gold is tied to the dollar, whose strength has depressed the whole world of commodities and currencies. In SIM's view, therefore, the correlation in the falling price of both gold and the yen is a circumstantial product of the fact that the yen is suffering along with all else from the dollar's strength. Both are valid, though SIM's blame on the strong dollar rings loud, as it appears to be suffocating everything about it. At all events, gold and silver will rise only if one of two events occur: (1) as Turd says, the paper price scheme falls apart due to a delivery failure. Unquestionably corrrect; however, the reported periodic declines in the availability of tradeble gold have thus far been so minuscule that it appears the banks have an inexhaustible supply, unless and until there is a reason for a wholesale rise in demand; or (2) the dollar falls precipitously, which will prompt flight of capital to gold, collapsing the paper price scheme. The question for PM holders to ponder seems to me then to come down to this: What are the factors or events that will cause the dollar to plummet? Will that event or circumstance occur this fall, as so many seem to suggest? Why, if it will?


Donate Shop

Get Your Subscriber Benefits

Exclusive discount for silver purchases, and a private iTunes feed for TF Metals Report podcasts!

Key Economic Events Week of 3/18

3/19 10:00 ET Factory Orders (Jan)
3/20 2:00 ET FOMC Fedlines
3/20 2:30 ET CGP presser
3/21 8:30 ET Philly Fed
3/22 9:45 ET Markit PMIs
3/22 10:00 ET Existing Home Sales
3/22 10:00 ET Wholesale Inventories (Jan)

Key Economic Events Week of 3/11

3/11 8:30 ET Retail Sales (Jan)
3/11 10:00 ET Business Inventories (Dec)
3/12 8:30 ET CPI (Feb)
3/13 8:30 ET Durable Goods (Jan)
3/13 8:30 ET PPI (Feb)
3/14 8:30 ET Import Prices (Feb)
3/14 10:00 ET New Home Sales (Jan)
3/15 8:30 ET Empire State Manu Index
3/15 9:15 ET Cap. Util. & Ind. Prod.

Key Economic Events Week of 3/4

3/5 9:45 ET Markit and ISM services PMIs
3/5 10:00 ET New home sales (Dec)
3/6 8:30 ET Trade Balance (Dec)
3/7 8:30 ET Productivity and Unit Labor Costs
3/8 8:30 ET BLSBS
3/8 8:30 ET Housing starts (Jan)

Recent Comments

by scoremore, 2 hours 22 min ago
by Montross515, 2 hours 26 min ago
by streber, 4 hours 40 min ago
by Ozymandias, Mar 22, 2019 - 11:45pm
by DOOGIE, Mar 22, 2019 - 11:04pm