Gold and Silver's Daily Review for 5th October 2010


Yesterday the Bank of Japan lowered interest rates to not far from zero and indicated they would monetize government bonds by buying them from the market.   This is QE.   It will add to the intervention program in weakening the Yen on foreign exchanges and weaken its buying power at home.

To be effective, the Japanese people must accept that spending rather than saving is the way forward.   This nation has been mired in deflation for over a decade now, so these measures appear to the B of J to be the only way to break the grip of deflation.   The era of the conservative, prudent, Japanese saver may be coming to an end as inflation rears its ugly head.   This is gold positive.   As a result in London and Asia gold moved up a level to $1,325 before the Fix which was set at $1,325.75.

The Chinese Prime Minister Wen Jiabao continues his tour of Europe.   With his offer to buy Greek bonds, we expect him to do the same for any Eurozone country, particularly those with high Yielding bonds.   As we said yesterday there are many reasons for them to do so.   We reiterate that such moves are part of preparations to get away from some heavy duty currency crises in the future.   In fact there seems to be so little out there that will repair the monetary world and so much that points to further damage.

In the next issue of our newsletters we will post articles [Subscribers can access our archives] on "What's driving gold investment, Prudence or Profits?" and "Have Central Banks lost control of the Gold market?" These may not be posted on public websites, so subscribe to make sure you get them.

Gold – Very Short-term

Gold will be strong today in the face of the moves by the Bank of Japan.   Short positions look vulnerable and may well be covered in a rush.   The question is, where will the buyers get their gold from?   We expect a boisterous day in New York.

Silver – Very Short-term

Silver traded at $22.20.   London Fixed at $22.24.  We expect silver will have a boisterous day in the States and elsewhere.

Gold Price Drivers all of us waiting to see when the U.S. will jump into more quantitative easing nobody was looking at Japan, a nation that has wallowed in deflation for a decade.   At one point the Nikkei stood above 16,000 but now is below 10,000.   A prudent industrious nation of savers, their government has come to the decision that such good sense is not good for the country.   What is needed is for the value of money to be lowered to kick start the velocity of money and its flow from the bottom to the top.   Savers will move quickly to buy items that can resist such a devaluation.   Durables, property and other assets are the only places to turn.   At the top of that pile lies gold and silver that can resist such undermining of values in Japan and all over the world.   The Japanese have ventured into gold for profit in the past, now they will do so for prudent reasons.

Japan will be the first of many to follow this path.


Julian D.W. Phillips