Gold falls sharply lower in terms of Japanese Yen

NEW DELHI, Mar 20 (Commodity Online): Japan is definitely the talk of interest in capital markets. The economic fallout in the recent days did not lag much behind nature's destructive forces. The financial aftershocks gathered force as investors fled from assets deemed risky such as stocks, oil and gold (the latter is quite surprising). Amid worries that the crisis could slow down a global economy, investors were also spooked by a 16 per cent drop in Japanese shares early during the week. Stock markets slumped around the world as investors sought what they believe to be safe havens, like United States dollars and Treasury Bonds. (We are constantly amazed that people deem these assets to be safe havens.) It is inevitable that most investors will feel the ripple effects of Japan's disaster in their portfolio one way or another. Will treasury bonds benefit in the long run from the Japanese fiasco? There are some good reasons to think that they will not. In fact, it seems very probable that Japan will be a net seller off US debt and equities as the Japanese government and the country's companies and citizens raise cash to fund the extensive rebuilding that will be needed. Keep in mind that Japan is the world's second largest holder of US debt. It is estimated that Japan owns about $3 trillion of US stocks and bonds. Japan owns more than $1 trillion in US stocks which is equal to about 6 per cent of the total value of the New York Stock Exchange. Selling off any sizeable portion of that will undoubtedly put downward pressure on American equities. Japan has been buying on average about $10 billion worth of treasuries per month. The reconstruction effort in Japan will also test its government's ability to borrow. Japan is already one of the most indebted countries in the world. It appears that if Japan begins dumping its US bonds, the US will have no choice but to raise interest rates in order to attract buyers for its treasury bills. And it needs to sell treasury bills in order to pay the interest on its bloated debt and its overstuffed spending programs. In terms of the Japanese yen, gold has moved sharply lower and is visibly below the rising trend channel. Should this be a cause for concern? Well, remember that technical analysis leads Investors to bet on the emotional patterns of the traders on the whole, buying when they sell and selling when they buy. Patterns, trends and so are particularly useful when markets move due to emotional factors. Remember-markets are logical in the long run but emotional in the short run. That's why we use fundamental analysis to establish long-term trend (secular bull market in commodities and precious metals) and then use technical analysis and many other tools for the short- and medium-term price swings. We are using technical analysis because we find it profitable to do so, but we are not technical analysis fanatics, and we realize that it has some limits, just like any other type of analysis - for instance fundamentals won't tell you anything about the short-term price swings. The current situation in Japan was not something that people could have expect to happen at this time, and what they could have discounted in the price. It was not a small event either, so it could not be viewed a price noise. The price of gold from the yen perspective declined, but it is clear at this time that it did not happen because gold became less attractive to investors.