Japan's Black Monday -What’s Going On?

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Change from last weeks gold and silver prices

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NZD Gold Down 2.5% With Stronger Kiwi Dollar

There has been a lot of action in all markets this week. Gold has not been spared. In New Zealand dollar terms it was down $102 (2.5%) from a week ago. It did hit a new all-time high on Thursday and then again on Friday. But then with the troubles in Japan (more on that below), NZD gold has dropped over the past few days. The next support area is the 50-day moving average (MA) at $3916. Then below that $3800.

In USD terms gold did not fare so badly. Down just $25 or 1% from a week ago. So holding up much better than global share markets have done. We could see it dip back down to retest $2300. Our guess is there’s still less chance we’ll see it drop back down to $2200 or lower.

If you’re wondering why is gold falling in a share market crash? Well this isn’t out of the norm. Past crises have seen gold (and even more so silver) dip initially before bouncing back much faster than other assets. But given the recent lack of interest in gold, we wonder if this dip could be even shallower this time around.

NZD Silver Down 6.5%

Silver in NZ dollars took a tumble along with other riskier assets this week. Down $3.13 or 6.5% to $44.97. So it’s back down to the $45 buying zone. The 200-day MA is not much lower at $43. Then below that is $42. So those areas should be strong buying opportunities – if they arise.

While USD silver is getting close to the 200-day MA at $26.07. Down $1.45 (-3%) to $26.90. So we’re already in a decent buying zone here. The next support levels would be at $25 and $22.50, which are the uptrend and downtrend lines from the wedge pattern that silver broke out of in April.

Again our feeling is that silver has had no coverage and is so far from all-time highs, that this dip down could be brief, compared to other “risk on” assets like stock markets and digital currencies. Be prepared to layer in from here down.

NZ Dollar Up 1.5% This Week

Last week we said we expected the Kiwi to bottom out and for local gold and silver prices to underperform compared to USD precious metals prices.

That has indeed been the case with the Kiwi up 87 basis points or 1.5% to 0.5981. There is plenty of room for the Kiwi to run up to 0.61 and the downtrend line there. So we expect this trend to continue.

Need Help Understanding the Charts?

Check out this post if any of the terms we use when discussing the gold, silver and NZ Dollar charts are unknown to you:

Gold and Silver Technical Analysis: The Ultimate Beginners Guide

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Unveiling the Value of All the World’s Gold: A Staggering Stockpile

Ever wondered just how much gold exists in the world, and what its total value might be? This week’s feature article delves into the world of global gold reserves.

The article explores:

Methods used to estimate the total amount of gold ever extracted
Putting a staggering figure on the combined value of this precious metal
How this immense value compare to global debt, and how these two figures might interact in the years ahead

Intrigued by the sheer scale of gold’s worth and its potential implications for the global economy? This article sheds light on the mind-boggling numbers and the enduring allure of this precious metal.

How Much is All the Gold in the World Worth in 2024?

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Gold Survival Guide Q&A Call Recording: Analysing the Silver Breakout

In case you missed our recent Q&A call there is a recording available.

The theme was: “Analysing the silver breakout”.

We delved into various charts and looked at:

Why this current breakout in silver is so significant
What levels to look for as possible buying zones in the current consolidation or pullback
Some potential price targets to look towards in the future
Timing for these targets
Plus we answered over 30 questions from our readers

Access the call recording below:
Q&A Call Recording: Analysing the Silver Breakout

Japan’s Black Monday – What’s Going On?

Black Monday has rocked global financial markets due to the Bank of Japan’s “unexpected” interest rate hike. Here’s a real short headline summary of what’s happened:

Japan: Suffered a historic market crash, with the Nikkei 225 experiencing its largest one-day point drop ever.
Global Markets: Experienced a broad sell-off, especially in technology stocks. The VIX volatility index surged, indicating high market fear.
Yen Carry Trade: The sudden strengthening of the yen caused a massive unwinding of the yen carry trade, contributing to market turmoil.
Economic Concerns: Fears of a global economic slowdown have increased due to rising unemployment and the potential for a recession.
Safe Haven Assets: Investors are moving to gold and government bonds as safe havens.
Monetary Policy: Central banks, especially the Federal Reserve, are under pressure to act to stabilize markets and “support economic growth”. i.e. cut rates, print currency etc.

Overall, the global financial system is facing significant challenges due to these “unexpected” events, and investors are bracing for increased volatility.

Was the BoJ Unexpected Rate Increase Unexpected?

We put the word “unexpected” regarding the rate cut in quotes as we wouldn’t really say this was a huge surprise.

In case you haven’t been following us in recent months here’s a list of what we have reported has been happening in Japan recently:

Sept 2023: “Real interest rates in Japan are well below zero. After inflation, they are close to -3% in fact. Zerohedge notes: “Japanese savers have not had a strong incentive to move assets out of cash.. Until now”. The weak Yen has pushed Japanese savers into gold. Source.
April 2024: The Japanese central bank intervened to support an incredibly weak yen. We reported how Japanese gold demand had been huge during 2023 (unlike in the West). Up 273% from the year before due to their high inflation. Source.
May 2024: Japan may be leading the way forward as it hiked its interest rate while also announcing the end of its yield curve control. In Gold We Trust Report noted that: “This is the first time that a central bank has combined conventional interest rate hikes with balance sheet expansion through QE. This amounts to a monetary policy oxymoron, as it effectively means tightening while easing monetary policy conditions.” Source.

So another interest rate rise after one in May shouldn’t have been a huge surprise. But it appears that it certainly has been.

This most recent rate hike has led to a significant unwinding of the yen carry trade.

So What Exactly is the Yen Carry Trade?

This involves borrowing in yen at low interest rates to invest in higher-yielding assets somewhere else. But with the added benefit of a depreciating yen to further boost returns.

However, the long-term trend of a depreciating yen has suddenly reversed. A huge move took place in the USD/JPY exchange rate. Dropping from 162 to around 142. So suddenly this trade no longer makes sense.

Therefore suddenly many investors have also unwound these positions quickly, which has meant they’ve suffered substantial losses as more sellers than buyers means sharply lower prices. There could be some investors liquidating gold and silver to fund these losses. Hence as alluded to earlier why gold and silver might take a dip initially too.

Is This the End of the World?

Not necessarily. But could it be the beginning of the end?

It certainly shows the global financial system is in a precarious place. There are many risks and Japan has been one of them. There are many others. US government debt levels. Large swathes of US banks are likely insolvent due to commercial real estate. Chinese deleveraging. Take your pick.

But overall we’d say this is going much the way we’ve expected for a while. Central bankers have been talking about their desire to beat inflation, but it seems we’re in the early stages of countries (other than Japan) now having to cut interest rates. It’s likely they won’t stop there. They’ll also likely put an end to “quantitative tightening” (the unwinding of QE). Then likely they’ll also begin engaging in further rounds of currency printing.

So as we keep saying expect another wave of inflation to come.

We are looking at any further dips in gold and silver to be temporary and therefore excellent buying opportunities. We now even have JP Morgan expecting higher silver prices with an average of $36 in 2025.

If you think the same way then please get in touch.

Please get in contact for a gold or silver quote, or if you have any questions: