Dear CIGAs,

News out of Japan overnight that its economy grew a mere 0.4% during the last quarter when economists and analysts were looking for a growth rate averaging 2.3% sent the yen sharply higher against the Dollar. Yes, you read that correctly.

Apparently news out of the US concerning the lackluster Empire State factory index reading had investors rushing for the “safe haven” of the Yen not to mention setting off another buying orgy in the US bond market. The buying send the yield on the Ten year to an astonishing 2.6%! The bond bubble continues unabated.

Part of the reason that the bonds keep moving higher and higher and interest rates lower and lower is that good quality paper for the fixed income market is getting harder and harder to come by. That is basically making investors choose Treasuries more by default rather than choice. Of course, the other reason is that the banks are reaping millions, if not billions, getting free money from the feds and then investing that in Treasuries, reaping a bonanza on the yield differential risk free.

It certainly seems to me, from looking at the action in the Forex markets, that wild price swings occurring in that venue are symptoms of a growing lack of trust in paper currencies that is now spreading around the globe. Who in their right mind would chase the Yen higher and higher, especially on the dismal growth numbers coming out of Japan? Then there is the open consternation of Japanese monetary officials who are looking on with dismay at the relentless rise in their currency which is choking off the vital export sector of their economy. Quite frankly, I am mystified that they have not ventured forth yet to punish the speculators. The fact that they have done so, is telling. To intervene and sell down the yen, they would have to purchase large amounts of both Treasuries and Euro bonds. Could it be that they can read the telltale signs associated with both the economies of the US and the Euro zone and are unwilling to hold such denominated assets as part of their reserves above and beyond what they are already holding? I am unsure but I had fully expected them to make some sort of effort to stem the yen’s advance by now.

Gold is benefiting from this environment as it moves higher both in Dollar terms and Euro terms once again.

Seasonally, gold tends to put in its chart low during the last part of the month of August before moving higher into the rest of the year. If this is indeed the case, the lifetime high should give way sometime within the next two months. If it does, it is not going to be a pretty autumn this year in the financial markets. Call me superstitious, but October’s always make me nervous. We’ll see.

The HUI, while higher today, still needs a closing push past 465 to convince doubters. The miners are still experiencing the drag coming from the broader equity markets and the usual ratio trades that are resulting from that condition.

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini