Japanese Economy Contracts: What It Means for Gold

Japan's 4th Quarter GDP Unexpectedly Contracts at 2.3% Annualized Rate The Financial Times reports Japan’s GDP shrinks in fourth quarterFebruary 13, 2012 Japan’s economy shrank for the third time in four quarters between October and December, after floods in Thailand damaged production, and a strong yen and subdued overseas demand hurt exports.

By Mark O'Byrne: Gold has surged nearly 4% in Japanese yen this morning as the BOJ entered currency markets overnight selling yen thereby depreciating their currency against the dollar and other fiat currencies. Gold’s London AM fix was USD 1,664.25/oz, EUR 1,170.61/oz, GBP 1,018.20/oz. Gold reached new record nominal highs in majors yesterday and remains close to these record highs today. (Click to enlarge)

The value of the yen has fallen sharply since Prime Minister Shinzo Abe took office in December on a promise to defeat deflation, while the Bank of Japan’s decision this month to ramp up its asset-buying program has fueled its decline In theory, the yen’s depreciation should be positive for Japan’s trade balance.

The value of the yen has fallen sharply since Prime Minister Shinzo Abe took office in December on a promise to defeat deflation, while the Bank of Japan’s decision this month to ramp up its asset-buying program has fueled its decline.   In theory, the yen’s depreciation should be positive for Japan’s trade balance.   A weaker currency generally boosts demand for a country’s exports as they become cheaper in international markets, while dampening domestic consumption of imports as their prices increase in local currency terms.  

Mark O'Byrne submits: Gold is marginally lower in U.S. dollars but continues to eke out gains in euros. The euro fall again Thursday possibly as markets digested Trichet’s grim warning regarding financial contagion. Gold at €1,081.40/oz is less than 1% away from record nominal highs in euros at €1,088/oz. Currency debasement and sovereign debt and systemic risk remain high, which is leading to gold consolidating near record highs in most currencies - (click charts to expand).

Mark O'Byrne submits: Gold is lower in dollars but higher in euros and has reached new record highs in pounds sterling at £958.25/oz. Gold is being supported by strong and increasing demand internationally.

Mark O'Byrne submits: Gold was marginally higher in most currencies Tuesday and on the verge of making new nominal highs in dollars, euros and pounds.

Mark O'Byrne submits: Gold and silver were lower yesterday morning as the recent bout of weakness continues. Equities in Asia were lower on economic growth and inflation concerns and European indices are also lower as Greek debt talks are in disarray after the weekend arrest IMF's Dominique Strauss-Kahn. (Click to enlarge) Cross Currency Rates