Buying Gold in YEN Now Making Sense

As bad as things are here in the U.S., despite a current rising stock market, Japan has some serious issues to deal with as their economy spirals down the path of self destruction, bringing down with it the YEN.

December 12th, 2009, I mentioned that the YEN was not immune to problems. I said in that article, “The logical conclusion and another area to keep an eye on is trading gold in YEN.”

In Japan, GDP real growth has turned negative, incomes are shrinking, unemployment is rising, expenditures are more than revenues, public debt is almost 200% of GDP, exports are decreasing and the government keeps stimulating.

Is the Japanese Economy Worse Off Than the U.S.?

While Japan’s GDP (Purchasing Power Parity) is presently 4.14 trillion, its Stock of Domestic Credit ballooned to 12.34 trillion in 2008, three times its production. The U.S., comparatively speaking has about close to a 1:1 ratio.

Here are the economic data comparing Japan’s economy with that of the U.S. (Japan data listed first).

GDP – real growth rate:

-5.7% (2009 est.) U.S. -2.4% (2009 est.)

-0.7% (2008 est.) U.S.0.4% (2008 est.)

2.3% (2007 est.) U.S. 2.1% (2007 est.)

GDP – per capita (PPP):

$32,600 (2009 est.) U.S. $46,400 (2009 est.)

$34,500 (2008 est.) U.S. $48,100 (2008 est.)

$34,700 (2007 est.) U.S. $48,300 (2007 est.)

note: data are in 2009 US dollars

Unemployment rate:

5.6% (2009 est.) U.S. 9.4% (2009 est.)

4% (2008 est.) U.S. 5.8% (2008 est.)

Budget:

revenues: $1.614 trillion U.S. $1.914 trillion

expenditures: $1.997 trillion (2009 est.) U.S. $3.615 trillion (2009 est.)

Public debt:

192.1% of GDP (2009 est.) U.S. 82.9%

Exports:

$516.3 billion (2009 est.) U.S. $994.7 billion (2009 est.)

$746.5 billion (2008 est.) U.S. $1.277 trillion (2008 est.)

Debt – external:

$2.132 trillion (30 June 2009) U.S. over $15 trillion (30 June 2009)

$2.231 trillion (31 December 2008) U.S. $13.75 trillion (31 December 2008)

All Is Not Well In Japan

Things don’t look well for Japan’s future either. Government debt is expected to grow to 246% of GDP in just 3 years. Imagine what these numbers would look like if inflation struck Japan and oil prices started to climb.

Remember, Japan’s livelihood as the world’s 5th largest user of oil depends on massive imports from oil producing nations to keep their economy running smoothly. Any change in this dynamic could have extreme consequences.

To make matters worse, Japan’s citizens age 60 and over make up 30% of the population and that number is expected to grow to 40% by 2050. All the while, Japan’s work force will be shrinking.

So what reason do you give for the strength of the YEN the past 2 1/2 years?

Exchange rates:

Yen (JPY) per US dollar

93.4 (March 31, 2010)

94.5 (2009)

103.58 (2008)

117.99 (2007)

116.18 (2006)

110.22 (2005)

I asked the same question concerning the strength of the EURO in November of 2009 and recommended people invest in gold with EUROs. That trade returned over 7% in two months. While that is still a good trade, despite the proposed intervention in Greece that has seen the EURO rebound some, the YEN trade is looking pretty attractive at present.

This Joy Ride the YEN Has Experienced Is Coming To an End

The last 5 years has seen the YEN and the U.S. Dollar price of gold switch back and forth, one leading the other, while both depreciating in value versus gold. For the past couple years it’s been the U.S. Dollar price of gold leading the YEN price of gold higher as shown in the following chart.

But in March of 2010, that dynamic changed when gold priced in YEN broke out above gold priced in U.S. Dollars as you can see by blue line, crossing the red line in the chart below. In fact, YEN gold has returned 5.18% the last 60 days while U.S. Dollar gold 2.67%

While the U.S. has it’s problems with debt, being a net exporter, high unemployment and the like, Japan, with its ever decreasing population and increasing older population is in deep trouble.

Their government solution has been adding more debt to debt to try and stimulate the economy. The same goes for the Eurozone and the U.S. leaders. This is a recipe for disaster no matter what currency one is invested in, but while the U.S. Dollar is in the muddle through stage, profit can be had investing in gold with the EURO and the YEN.

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About Doug Eberhardt

Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534

Disclosure:

Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with capital you can’t afford to lose. This is neither a solicitation nor an offer to Purchase/Sell futures or options. No representation is being made that any account will or is likely to achieve gains or losses similar to those discussed in this outlook. The past track record of any trading system or methodology is not necessarily indicative of future results.

All trades, patterns, charts, systems, etc. discussed in this outlook and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author.

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