Gold Price & Japanese Yen Relationship

There is a strong, yet evolving relationship ongoing between the U.S. dollar (USD), the Japanese yen (JPY), and gold price. We believe the present dynamic is set to propel gold above its 2016 highs over the coming weeks. At various times over the past 15 years, one, both, but never all three of these assets simultaneously have been seen as the “safety asset of last resort.” This especially in times of economic or geopolitical crises. Our long-term thesis revolves around an increasing recognition that none of the world’s fiat currencies are truly safe-havens. This recognition will be a mostly psychological shift amongst the world’s citizens. Hence, the fundamentals are already firmly in place. More importantly, psychology is more relevant than the fundamentals in gauging market direction over a good timeframe. For example, gold prices fell by 45% from 2011 – 2015. Meanwhile, silver fell by over 70%. This is even as the Federal Reserve and other international central banks continuously debase their currencies. Thus, fundamental arguments as to the market direction of the precious metals are inherently suspect. To be on the right side of the trend, we must understand these fundamentals. Yet, to firmly grasp what is happening in the market. And this is where technical analysis provides value.

Japanese Yen to Gold Relationship

Increasingly, we observe the market’s psychology. So, when the world favors the Japanese yen over the U.S. dollar as a safe-haven, it also tends to favor gold simultaneously. This positive correlation between yen and gold is visible here from an examination of the two assets since 2011. Note the nearly identical shape of the Japanese Yen to US dollar cross-pair (top) with the price of gold (below): Indeed, as we can see above, the Japanese yen and gold move almost in lock-step for the past seven years. This is with the exception that gold had broken its long-term 2011 – 2017 downtrend (red callout) last August. Meanwhile, the Japanese yen has just done so over the past two weeks. The bottom line is: the Japanese yen and gold remain firmly in positive correlation. We can confirm this with an examination of the Japanese yen to gold ratio. It shows how much gold is to purchase one yen. As we show in blue, the two move nearly in unison since 2011:  

Back to the Yen (JPY) versus Dollar (USD)

The critical development that occurs this week was not the breaking of the correlation between yen and gold. That correlation is still firmly in place. (although we will alert you when breaking is near). Instead, the critical point to observe this week is the major breakdown in favor of the yen. The yen that has occurred in the USD/JPY cross-pair:The USD/JPY consolidation took the shape of a symmetrical triangle. This was from 2015 through last week. (shown in blue). The formation had an amplitude of 27 points. Subtract from the triangle apex at 111. It reveals a long-term target of 84 yen to the dollar. This target expects over the next 12 – 18 months. The most important aspect for precious metals investors is that gold is still moving strongly inverse with the pair. Thus a major breakdown in USD/JPY confirms a major advance in gold prices is underway. Yes, there will come a time when gold moves on its own. This is irrespective of the Japanese yen. But for now, the correlation holds. The U.S. dollar breaks an incredibly significant 3-year symmetrical triangle lower versus the yen. This portends to a period of U.S. dollar weakness. Also, to a period of Japanese yen strength over the coming 12 - 18 months at a minimum.

Takeaway on Gold Price

Gold positions increasingly close to breaking its 2016 high at $1,378 per ounce. while the correlation between yen and gold is still firmly in place. We see here with the breakdown in USD / JPY the backdrop for a gold price advance. It is lasting the next 12 - 18 months toward our minimum target zone of $1,485 - $1,535 per ounce.

Christopher Aaron Bullion Exchanges Market Analyst Christopher Aaron has been trading in the commodity and financial markets since the early 2000s.  His strategy and technical analysis have helped his clients to identify both long-term market cycles and short-term opportunities for profit. This article is a third-party analysis. It does not necessarily match the views of Bullion Exchanges. Please do not consider it as financial advice in any way. Bullion Exchanges is at 30 West 47th Street in New York City’s Diamond District. We are open Monday through Friday 9 A.M. to 5 P.M.. Or, online anytime at BullionExchanges.com.