Gold hit following yen intervention

In the Lead: “I Have A Yen [Or A Few Trillion] for You”

The second central bank currency market intervention in as many months sent the US dollar soaring and gold reeling overnight as market players rushed for various entry and exit doors to take advantage of the overt move. The selling of yen by the BoJ represented the third such event this year and it follows a fresh postwar high (at 75.35 vs. the USD) that the Japanese currency had reached just last week. The August intervention involved the selling of 4.5 trillion yen and it was the largest in seven years.

Last night’s maneuver resulted in the greenback reaching a three-month high against the yen. The massive unilateral (as opposed to what the SNB and other central banks did in early September) pressured the yen some 4% lower during the wee hours and saw gold lose about 2%. Japanese Finance Minister Jun Azumi demonstrated that he had gotten the message from his country’s numerous frustrated exporters and that battling speculators was the order of the day in order to rectify part of the situation.

Slumping exports are just about the last thing Japan can afford in the wake of the March 11 natural disaster. Exporters of the world’s third largest economy are thought to be able to remain profitable at yen levels only near ¥86 vis a vis the greenback, or lower. As such, there are analysts who do not see last night’s intervention as having been the last one just yet.

The yellow metal came to within striking distance ($4) of falling through the $1,700 level but managed to (thus far) hold above it. As regards the dollar’s gains, well, it certainly recovered lost ground on the trade-weighted index (climbing more than 1.25%) and against the yen of course. The euro did not cede the $1.40 level just yet, however, there was a general feeling among market participants that the post-EU meeting euphoria seen late last week consisted mainly of optimistic “fumes” and that Europe still has to slog through quite a mess on its road to a state of credit repair.

To wit, the focus has already shifted to Italy among Eurozone watchers as Monday dawned. Over in Italy, failed lounge singer and would-be modern-day Casanova, Signore Berlusconi, remained Trump-like ego-filled as he defiantly asserted that “only I and my government can achieve the reform program” [imposed upon them by Ms. Merkel & Co. recently] and that thus “there is no way for me to stand aside.” A Bloomberg editorial goes one step further and opines that, anyway, Europe may have just blown its last chance to finally put an end to the seemingly interminable debt crisis.

New York spot dealings opened notably lower than the levels that Friday’s mild profit-taking had brought about. This morning’s starting bids came in at $1,720 (down $24) in gold and at $34.33 (down 96 cents) in silver. There was a fairly massive, (larger than 360 tonnes’ worth) “leakage” from silver ETFs in the latest market positioning reports that we parsed.

The notable loss in the metal’s balances apparently reflects doubts on silver’s current value among ETF players and a perception that last week’s rally was overcooked. The Value View Gold Report Trading Thoughts latest issue feels that gold’s perceived ‘solid floor’ at $1,600 is not really all that solid and that the $1,500 zone represents a more meaningful test of support for bullion. VWGR’s Ned Schmidt also opines that silver’s latest rally was another case of “overdoing” by speculators.

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