Gold remains confined to the 1697.50/1625.69 range that was established in January. That range is in turn well within the broader 1922.74/1522.48 range that has dominated since 2011. But don't think for a second that the yellow metal has been completely stagnant.
One need look no further than gold in yen terms, which reached a 33-year high of Y157,476 just last week, as proof to the contrary.
EYE ON JAPAN
Indeed, Japanese monetary policy has been stealing the show of late, leading to significant declines in the yen versus the other major currencies and prompting a rebuke from the G7 on Tuesday. Perhaps hearing what they wanted to hear, the Japanese initially interpreted the G7 statement as a tacit approval of their deflation fighting measures.
Japanese Finance Minister Aso was quoted as saying the G7 "properly recognizes that steps we are taking to beat deflation are not aimed at influencing currency markets." The yen promptly fell to new 27-month lows against the dollar.
In that context, certainly any central bank or country actively looking to debase their currency could find justification of some sort. The Japanese say they are fighting deflation, the Europeans are attempting to get their economy out of recession, and the U.S. is trying to reduce unemployment. Apparently weaker currencies are just an inadvertent consequence of these more noble domestic goals.
This forced the G7 to clarify their position, with an official subsequently stating unequivocally that "The G7 statement was misinterpreted. The G7 statement signaled concern about excess moves in the yen." The official went on to say, "Japan will be in the spotlight at the G20 in Moscow this weekend." The yen rebounded in response.
In trying to be a little too diplomatic initially, the G7's effort to dispel worries about a currency war may have in fact intensified those concerns. In response to that unnamed G7 official's "clarification," Bank of England Governor Mervyn King said the G7 statement should be taken at face value. "When countries take measures to use monetary stimulus to support growth in their economies, then there will be exchange rate consequences and they should be allowed to flow through," King said.
That seems to suggest it's every country for itself, which sounds very much like a currency war. Is Japan going to be singled out simply for being more effective with its monetary stimulus and messaging? If so, that would open the door to much finger-pointing in Moscow this weekend.
There are many who would argue that a full fledged currency war is already underway. No matter the justification and regardless of whether the debasement of fiat currency is intentional or not, it is an ongoing trend that has hugely contributed to the long term secular bull market in gold against most of the world's currencies.
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