Both silver and gold are up today as a result of a broad-based perception that Japan’s $1.4 trillion stimulus program will fan the flames of the unfolding global currency war. Gold was up US$14.80 per ounce at $1587.50, while silver had advanced to $28.02, up 2.64% on the session.
The reason isn’t hard to see. As stated by Bendan Murray an Scott Lanman at Bloomberg:
“The Fed, the ECB and the BOJ have more than doubled the combined size of their balance sheets since the global financial crisis broke out in 2007, expanding them by a total $4.7 trillion. With the BOJ’s action, that amount could be increased by at least a further $1.3 trillion by the end of 2014.”
In strictly nominal terms, the prices of both gold and silver should rise as nations scramble to counter the Japanese move by extending and increasing their own stimulus to keep the price of their respective currencies down.
Putting it into perspective, Kyle Bass of Hayman Capital Management pointed out that Japan’s interest costs will likely exceed their tax revenue at some point, and that Japan was stimulating at 75% the rate that the US was stimulating, in an economy that is one third the size of the US.
Both Bill Gross of PIMCO and George Soros have warned that the move by Japan could start a rout of the yen.
“If the yen starts to fall, which it has done, and people in Japan realize that it’s liable to continue and want to put their money abroad, then the fall may become like an avalanche,” Soros said today in an interview on CNBC.
Mind you, Soros is not the most accurate forecaster in the last decade. Soros called gold “the ultimate bubble” in February 2010. Rising 75% over the following 18 months, its price stands more than 43% higher today.
In combination with Cyprus’s seizure of up to 60% in some cases of depositors funds, the Japanese stimulus is just the latest move to demonstrate that fiat currencies are rapidly becoming unsafe, and only gold and silver will be worth anything once all these currencies are gone.
To find out when is the best time to buy gold and silver and their associated equities again, consider a subscription to the Midas Letter Free Edition.
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.
Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.