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Guest Post: The Lesson From Japan For PM Investors

Tyler Durden's picture





 

From Jeff Clark at Casey Research

The Lesson from Japan for PM Investors

It feels a little callous writing about Japan with respect to
precious metals after the country suffered such a terrible tragedy.
However, I think it’s worth discussing because there’s a lesson in it
for all of us. In fact, I think the moral could be couched in terms of a
warning.

Japan’s Background with Precious Metals

It’s
commonly known in Japanese culture that citizens harbor gold to protect
against unforeseen events. The gold isn’t sold unless it’s needed for
an emergency. With respect to the Japanese government, the country’s
central bank is the 8th largest holder of the metal
(including the IMF and GLD). Beyond investment, Japan represents about
6% of worldwide gold fabrication (excluding investment demand), the
majority of which is in electronics. Scrap recycling has been heavy in
recent years, while jewelry demand is low.

Regarding silver, the
tiny island represents about 9% of global demand. Industrial uses
comprise the biggest part of that, which includes the automotive
industry, construction, medical uses and solar. Jewelry and silverware
have minimal end-use, and photography, like most everywhere else, has
been falling heavily.

Japan’s Trend with PMs

While
the percentage of Japan’s buying to worldwide demand won’t drastically
change in reaction to the recent disasters, they, like several other
countries, are pursing another tactic to get minerals. The government is
considering revising its mining law, specifically when it comes to
seabed mineral exploration and extraction. This is noteworthy because
Japan hasn’t touched its mining law in 50 years. To be sure, revisions
will be stricter for permitting and monitoring, but the process will be
streamlined for Japanese companies.

Why now? As an executive at
Mitsubishi Materials put it, “it’s an issue of national interest”
because China, Russia, and South Korea are already exploring parts of
the country’s exclusive economic zone. They are undoubtedly feeling the
pressure of not only wanting what they think is rightfully theirs, but
also of wanting to capitalize on high metals prices.

The Lesson from Japan

Premiums for gold and
silver there have risen in response to the disasters, which isn’t
surprising. Japanese investors scrambled for physical metals after the
earthquake, immediately pushing premiums to three-year highs. And it
wasn’t just buyers in the earthquake, tsunami and nuclear-plant zones;
those in less affected parts of the nation have been rushing to buy
precious metals, too. The end result is that available supply has been
glutted.

The reactionary buying in Japan could not just support
metals prices, but push them higher. This is certainly due to the
draining of supply, but also because it’s complicating delivery and
exacerbating fabrication problems. The country is a net gold exporter,
but there may not be many planes and boats loaded with bullion leaving
ports anytime soon, given that many modes of transportation are down and
the distribution of more urgent food and other supplies is complicated.

This
could dry up gold supplies elsewhere in Asia, as Japan exported 2.7
million ounces last year. While this is only roughly 2.3% of global
supply, these ounces are concentrated in Asia, a region that has already
seen many countries’ citizens hoarding precious metals. If supply
becomes scant across Asia, it’s easy to see how this could light a fire
under prices.

As Mark Pervan, head of commodities research at ANZ,
said, "This is a buy-on-the-dip opportunity. Investors, not just Japan
but globally, have been looking for a trigger to get back into the
market. The rise in premiums in Japan could be it."

The lesson is
this: When disaster strikes, it’s almost certainly too late to buy. Not
only will you pay a higher premium, you may have difficulty getting your
hands on bullion. You have to purchase your insurance before adversity
hits.

And the warning is this: We saw how supply dried up and
premiums skyrocketed during the market meltdown of 2008. Europe saw the
same result when Greece imploded. We’re now seeing it happen in Asia due
to Japan’s woes. We keep seeing this picture repeat. While no one wants
to bet on calamity, is the U.S. really immune from trouble? Are you?

Even
if no natural disaster strikes North America, there’s a certain hazard
that’s inescapable at this point. The abuse being heaped upon the U.S.
dollar has not fully played out. Sooner or later the decline of the
mighty greenback will affect almost every area of your life. In fact,
what does your day involve that doesn’t require money? Eating,
showering, driving, working, shopping, entertainment – all of these will
be grossly impacted by the demise of the currency unit used in this
country.

The monetary base continues to explode. With no fanfare,
it set another new record last week – $2.35 trillion. It’s up 18.7% just
since New Year's eve, and 39.2% since December 2008. These actions will
have consequences. They will lead to a monetary earthquake.

Your
heart went out to the people of Japan when you saw the pictures of the
devastation from the earthquake. Will you be ready when the currency
earthquake hits here? One of these days it’ll strike, and then it will
be too late to buy.

I hope you have sufficient asset protection to withstand the monetary storm that’s building off our coast.

 


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Fri, 04/01/2011 - 17:38 | Link to Comment Rodent Freikorps
Rodent Freikorps's picture

I'm gonna go long canned whale steaks. I imagine our Dept. of Defense will buy a lot in 3...2...

Fri, 04/01/2011 - 17:53 | Link to Comment the mad hatter
the mad hatter's picture

I went long politcal corruption and netted a 10-bagger.

 

inflate inflate away!

Fri, 04/01/2011 - 19:08 | Link to Comment gametracker
gametracker's picture

dude that's awesome! I went long political corruption, media deception, and banker fraud and netted a 30 bagger! I haven't sold yet though because I believe that there's MUCH more upside to come!

Sat, 04/02/2011 - 12:01 | Link to Comment SparkyvonBellagio
SparkyvonBellagio's picture

Who POSSIBLY could have been the Mars Energy Company at that point?
Any Guesses?

Science
Was There a Natural Nuclear Blast on Mars?
By John Brandon
Published April 01, 2011

NASA/JPL
NASA's 1997 Pathfinder mission to Mars returned this stunning image of the planet's rocky red landscape.
Ever wonder why the red planet is red?
About 180 million years ago, a planet-shattering yet naturally occurring nuclear reaction may have wiped out everything on Mars, sending a shockwave that turned the planet into dry sand.
Even more incredible: A natural nuclear reaction could have occurred on our own planet -- and could happen again, said Dr. John Brandenburg, a senior propulsion scientist at Orbital Technologies Corp.
"The Martian surface is covered with a thin layer of radioactive substances including uranium, thorium and radioactive potassium -- and this pattern radiates from a hot spot [on Mars],” Brandenburg told FoxNews.com.
“A nuclear explosion could have sent debris all around the planet," he said. "Maps of gamma rays on Mars show a big red spot that seems like a radiating debris pattern ... on the opposite side of the planet there is another red spot."

The European Space Agency's Mars Express satellite just buzzed past the barren Phobos, the largest of Mars's tiny moons. Here's what the cameras captured.
RELATED LINKS
NASA Must Study Space Sex, Scientist Says
NASA's Orion Moon Craft Unveiled at New Spaceflight Facility
NASA Tests Mars Space Suit in Antarctica
Advertising Could Pay for a Mission to Mars, Scientist Says
To Boldly Go: What Made 400 People Volunteer for a One-Way Mission to Mars?

A NASA spacecraft has been beaming to Earth incredibly detailed pictures of the surface of Mars. And the beautiful colors and rich textures of the red planet will shock you.
According to Brandenburg, the natural explosion, the equivalent of 1 million one-megaton hydrogen bombs, occurred in the northern Mare Acidalium region of Mars where there is a heavy concentration of radioactivity.
This explosion filled the Martian atmosphere with radio-isotopes as well, which are seen in recent gamma ray spectrometry data taken by NASA, he said.
The radioactivity also explains why the planet looks red.
Brandenburg said gamma ray spectrometry taken over the past few years shows spiking radiation from Xenon 129 -- an increase also seen on Earth after a nuclear reaction or a nuclear meltdown, including the one at Chernobyl in 1986 and the disaster in Japan earlier this month.
Dr. David Beaty, Mars program science manager at NASA’s Jet Propulsion Laboratory, told FoxNews.com that he finds the idea intriguing and fascinating. But to prove the science, the agency would need to plan a mission to explore Mare Acidalium on Mars.
And there are more pressing issues, including missions to find extraterrestrial life. “You have to assess the importance of the question relative to the cost of answering the question,” he said.
Still, Beaty expressed doubts, saying the geological conditions on this planet and Mars have existed for millennia -- what exists has existed for a long time, and there are few sudden changes. “Rocks are what they are. [A natural nuclear reaction] could happen in another billion years, but it is not something to make you want to go home to your family and move to the mountains right away,” he said.
Dr. Lars Borg, a scientist at Lawrence Livermore National Lab, called Brandenburg’s conclusions unsurprising -- and part of known geological processes, not a nuclear reaction.
"We've looked at Martian meteorites for 15 years, and looked in detail at the isotopic measurements .. and not a single person out of hundreds worrying about this have thought there could have been a nuclear explosion on Mars," he told FoxNews.com.
Brandenburg -- who once worked at Livermore himself -- defended his research, arguing that defense experts he talked to off the record said they agreed there are signs of a nuclear reaction.
Besides, there's a precedence for a natural nuclear reaction on our own planet, he noted.
The Oklo, Gabon, region of Africa has uranium-coated sediments from a nuclear reaction that occurred 2 billion years ago.
A massive nuclear explosion on Mars would have created huge craters on the surface, visible from orbiting telescopes like Hubble and from the Mars rovers. Brandenburg said such craters could have filled in with sand over the past 180 million years, leaving no visual cues to prove the theory.
Another possibility is that the reaction occurred in mid-air and did not leave a crater -- which is exactly what happened at the Tunguska event in Russia in 1909, presumably by a large comet.
Harrison Schmitt, a geological expert and the last man to step out of the Apollo spacecraft on the moon, told FoxNews.com that there is “general validity” to Brandenburg’s theory. He said the nuclear reaction may not have been caused by an explosion, however, and might have occurred over time.
Edward D. McCullough, a science and space consultant, agreed that the Mare Acidalium region of Mars does show some strange colors and terrain formations that seem unexplainable.
“There seems to be a reasonable closure between the number of fissions required to produce the Xenon 129 enhancement and the amount of energy required to toss material to that point on Mars,” he said.
“This massive nuclear explosion on Mars seems to defy natural explanation,” said Brandenburg.

Read more: http://www.foxnews.com/scitech/2011/04/01/natural-nuclear-blast-mars/#ix...

Sat, 04/02/2011 - 15:04 | Link to Comment Dismal Scientist
Dismal Scientist's picture

You're losing it, buddy.

Sat, 04/02/2011 - 15:09 | Link to Comment Rodent Freikorps
Rodent Freikorps's picture

Where's the Earth shattering KaBoom?

Without an Earth Shattering KaBoom, I call bullshit.

Fri, 04/01/2011 - 17:41 | Link to Comment InconvenientCou...
InconvenientCounterParty's picture

So how will a gov't, leveraged to oblivion, pay for disaster recovery?

3...2...1

Fri, 04/01/2011 - 17:46 | Link to Comment Debtless
Debtless's picture

go go goldzilla.

Fri, 04/01/2011 - 17:46 | Link to Comment Zero Govt
Zero Govt's picture

Jeff Clark  -  i can follow why the Japanese people might seek Gold and Silver as a store of value... but why would the devastation and indeed high nuclear radiation be good for industry and increase industrial consumption? 

Fri, 04/01/2011 - 17:48 | Link to Comment spartan117
spartan117's picture

The end result is that available supply has been glutted.

I think you meant gutted? 

Fri, 04/01/2011 - 17:53 | Link to Comment apberusdisvet
apberusdisvet's picture

The slack in production, if it remains severe, will be taken up by other Asian countries, in a NY frickin minute.  The vultures and industry stealers are already out in force, you can bet on it.

Fri, 04/01/2011 - 18:00 | Link to Comment Idiot Savant
Idiot Savant's picture

This is about as informative as the Lear Capital advertisements.

Sat, 04/02/2011 - 00:04 | Link to Comment Creed
Creed's picture

yeah Idiot, more rah rah rah sis boom bah bullshit

 

there's a few kernels in there tho

Fri, 04/01/2011 - 18:00 | Link to Comment janchup
janchup's picture

We already have a National Disaster. It lives in D.C.

Fri, 04/01/2011 - 18:57 | Link to Comment Arch Duke Ferdinand
Arch Duke Ferdinand's picture

""We already have a National Disaster. It lives in D.C.""

April Fools....Wrong Side Up...2 minute short...

http://www.youtube.com/watch?v=W0Uju3tYS2s

Fri, 04/01/2011 - 19:01 | Link to Comment Pegasus Muse
Pegasus Muse's picture

In the White House.

Fri, 04/01/2011 - 18:04 | Link to Comment topcallingtroll
topcallingtroll's picture

while I think most gold and silver bugs are paranoid, faggot cocksuckers, I don't see any reason why someone shouldn't have 10 to 40 percent real physical assets in a portfolio. 

 

An efficient and logical portfolio for long term dollar cost averaging over 40 years could definitely include 10 to 15 percent precious metals and should include no less than 3 percent. 

Now if all investors figured out how to construct portfolios that sat right on the edge of the efficient frontier, rather than just buy what their advisor tells them to buy.......

Fri, 04/01/2011 - 18:17 | Link to Comment Danielius
Danielius's picture

Why the need to be abusive?  They are undoubtably in better financial shape than you, is this why? When you begin you comment with such a well reasoned and insightful opinion, well, I guess readers will have no problem where to put the rest of your well reasoned and insightful advice.  Personally I find people who are so abusive generally not very smart. Perhaps you are a genius. You hide it well. It is also worth noting, that people who call others names usually do it because it applies directly to themselves.

Fri, 04/01/2011 - 19:08 | Link to Comment Pladizow
Pladizow's picture

Its called "Projection" - Projecting ones self image upon others.

Sat, 04/02/2011 - 14:00 | Link to Comment Bam_Man
Bam_Man's picture

I wouldn't mind having the image in your avatar projected upon me.

Fri, 04/01/2011 - 18:19 | Link to Comment Yen Cross
Yen Cross's picture

Little pissed off about that turd in NY, and the dxy plunge are we?

Sat, 04/02/2011 - 00:38 | Link to Comment penisouraus erecti
penisouraus erecti's picture

it takes one to know one, so you are no doubt an expert on "paranoid, faggot cocksuckers".

No PM crash today....poor baby.........

 

Fri, 04/01/2011 - 18:03 | Link to Comment MarketTruth
MarketTruth's picture

And on another note about silver:

Guess how many TONNES of silver have been destroyed due to their use in bombing Lybia. Just guess (it is big)...

Fri, 04/01/2011 - 18:15 | Link to Comment Nozza
Nozza's picture

38,000 troy ounces?

Fri, 04/01/2011 - 18:19 | Link to Comment GubbermintWorker
GubbermintWorker's picture

How many troy ounces in a troy ton??

Fri, 04/01/2011 - 18:25 | Link to Comment Yen Cross
Yen Cross's picture

31 grams in one troy ounce. 32150 in one Metric tonne. 20 pennyweight(toz) if you want to go that direction.

Fri, 04/01/2011 - 19:12 | Link to Comment yabyum
yabyum's picture

I still go to costco to buy beer by the cubit. 

Fri, 04/01/2011 - 21:17 | Link to Comment Vlad Tepid
Vlad Tepid's picture

My car gets 40 rods to the hogshead, and that's the way I likes it!

Sat, 04/02/2011 - 13:25 | Link to Comment akak
akak's picture

My car gets 40 rods to the hogshead

Isn't that still illegal in several southern states?

Fri, 04/01/2011 - 18:18 | Link to Comment GubbermintWorker
GubbermintWorker's picture

Oh, I don't know.....three tons?

Fri, 04/01/2011 - 18:22 | Link to Comment Yen Cross
Yen Cross's picture

Color me niave. Aren't bullets copper jacketed?

Fri, 04/01/2011 - 18:26 | Link to Comment GubbermintWorker
GubbermintWorker's picture

Yeah, but tomahawk missles aren't. We fired off 191 of them and each one has approximately a monster box(500 oz) of silver inside.

Fri, 04/01/2011 - 18:31 | Link to Comment Yen Cross
Yen Cross's picture

Thanks for the education.

Fri, 04/01/2011 - 20:17 | Link to Comment Bobbyrib
Bobbyrib's picture

That's not good, sounds like they have a reason to confiscate silver...

Sat, 04/02/2011 - 00:34 | Link to Comment Oh regional Indian
Oh regional Indian's picture

For all sad (war) and not so sad (esoteric, consumption, reality) reasons, Silver is going to dis-appear at a logrithmic rate from the world. Not for nothing and not co-incidentally either do we have the mine shut down in Sud America, exacerbating an already volatile situation.

In addition, I'm sure someone has the NUMBers, but what is the energy requirement per ounce for Gold and silver extraction? Regardless of where that energy si coming from (ultimately from Oil and it's derivatives), that part of the equation is only headed in one direction, higher. In a product deflationary scenario (money inflationary, but that is not the point here), and an already over-built world (China's vacant cities as an example), real demand for copper, zinc et. al. will fall, as will tailings and so will PM extraction thereof.

All in all, again, for all the sad and not-so-sad but real reasons, the PM rise, but in particular Silver, the strategic metal, has only just begun countdown, not even ignition.

ORI

http://aadivaahan.wordpress.com/2011/03/11/axis-trembles/

Sat, 04/02/2011 - 07:52 | Link to Comment Just Observing
Just Observing's picture

Yeah, I keep seeing that 500oz figure tossed around, but never seen any reason WHY there is that much silver in a Tomahawk.  ANYONE got a definite source for that figure ?

 

I mean you basically have a rocket motor, a fair amount of explosives, and then a small guidance system with video transmission ability.  Assuming ALL the wiring is solid silver and all the contact on the circuit boards are silver, and uses some silver in the batteries, I just don't see more than a few dozen ounces, tops.

 

I think that 500 oz figure was simply grabbed from the air unless someone can point to a source that says different.

Sat, 04/02/2011 - 14:05 | Link to Comment Bam_Man
Bam_Man's picture

Now we will have to send in a Ranger battalion (or two) to retrieve our silver.

All your silver is belong to us! Bitchezzz!

Fri, 04/01/2011 - 18:17 | Link to Comment anvILL
anvILL's picture

>It’s commonly known in Japanese culture that citizens harbor gold to protect against unforeseen events.
Really? I'm not so sure about this.
Lets see how this chart will change next quarter to find out how commonly known it is in Japan.

http://4.bp.blogspot.com/-fgWB-frcwW4/TWgsCpbPlLI/AAAAAAAAADI/oBe0B6eU1aM/s1600/332656_1011668035_212large.jpg 

I am guessing that Premiums in Japan shot up due to increased demand in China by the Chinese trying to protect themselves against unforeseen events.

Fri, 04/01/2011 - 21:25 | Link to Comment Vlad Tepid
Vlad Tepid's picture

I question that comment too, Anvill.  I've been sourcing gold in "less than a kilo" batches for about 4 years now in Japan and my very reputable supplier always has trouble coming up with smaller amounts - 100 grams, 1 oz, etc.  He always coyly asks me if I'm in the market for kilo bars and say only if he drops the price by $25,000.  That gets a laugh (but so does everything else in Osaka).  He says there is a glut of kilo bars as these were purchased by long dead husbands during the Bubble and now the elderly wives are selling them off for housing, medical, food, grandkids etc.  But I know of very few Japanese who "habor gold" aside from a few Mint coins they picked up at a festival 20 years ago on a lark or a silver commemorative from a trip to Hawaii or the Tower of London or something.  My true impression is that there is nothing even approaching the cultural demand existing in China or India, or the goldbug/sound money crowd in the US.

Sat, 04/02/2011 - 06:32 | Link to Comment anvILL
anvILL's picture

Thanks for your comment. I live in Nagoya and often travel to Tokyo but I have never seen a ZHer kind of gold bug anywhere in Japan. Relative to GDP, Japanese holding of gold is quite low. Low enough to get some other foreign PM traders worried, which includes Dan Norcini and our pope of gold, Ferdinand Lips. The lack of availabiliy of silver as an investment is quite frighteningas a Japanese as well.

http://www.ishifuku.co.jp/market/index.html

The premiums/spreads are huge compaired to the U.S., making it much more difficult to invest in it.

Sat, 04/02/2011 - 09:22 | Link to Comment Vlad Tepid
Vlad Tepid's picture

I've never even asked about silver. Haven't seen it anywhere in investable physical form.  As I'm typing I remember a few years back when the banks were pushing a huge "campaign" of ETF/dollar cost averaging plan for gold accumulation. My wife and I went in to inquire in one of their larger branches in Osaka, in Umeda I think.  After asking 3 people we were finally directed to the right desk (usually the banks are a lot more squared away than that) and there was a very bored looking young lady (young lady at an obscure desk = very low on the totem pole).  She indicated surprise that we were inquiring and said they had had 5 people asking.  Since when? I pressed.  Ever,she replied.  And then wondered if we were really interest in doing this.  We collected our funds and promptly bought physical.  I sort of question where this author got that assertion. I think from his own imagination about heathen Cathay.

To be honest, Anvill, the premiums are so high that it is actually feasible to conduct a low-level "carry trade" in PMs, getting the profit on the premium, not the currency exchange, which has been too unstable for my taste for a while.  But don't tell anyone my idea.  :)

Mon, 04/04/2011 - 03:42 | Link to Comment Jimmy Carter wa...
Jimmy Carter was right's picture

try these, they run auctions Wed pm to Sun pm

 

http://storeuser6.auctions.yahoo.co.jp/jp/user/fujimint

Fri, 04/01/2011 - 18:26 | Link to Comment I Am The Unknow...
I Am The Unknown Comic's picture

"photography falling in Japan"?????  No way! 

(sarc ----I know.. digital)

Fri, 04/01/2011 - 20:01 | Link to Comment walcott
walcott's picture

Idiots who hammer metals are fudgepacking anti-gun faggots.

look at Steve Lies man.

Sat, 04/02/2011 - 00:11 | Link to Comment Yen Cross
Yen Cross's picture

darn I have to free my left hand. My Cheeze -Its were working me. Steve Lies Man, has a tongue made of ZINK, coated with fools GOLD!

Fri, 04/01/2011 - 22:08 | Link to Comment tiger7905
tiger7905's picture

Here is an interesting document someone received from RBC - Royal Bank of Canada attempting to purchase silver bars, "no longer manufactured"

http://goldandsilverlinings.com/?p=443

Fri, 04/01/2011 - 23:28 | Link to Comment pointer
pointer's picture

Let me translate this article in 4 letters - BTFD

Sat, 04/02/2011 - 00:12 | Link to Comment Stuck on Zero
Stuck on Zero's picture

I think the author has this all backwards. He states: "It’s commonly known in Japanese culture that citizens harbor gold to protect against unforeseen events." Well that event just hit!  If the Japanese are doing anything right now they are heading for pawnshops to sell their gold to buy water, food and housing.

Sat, 04/02/2011 - 00:36 | Link to Comment penisouraus erecti
penisouraus erecti's picture

Poor robottrader and smailes - they were so SURE the PM's were collapsing just this morning. Oh well......

Sat, 04/02/2011 - 13:32 | Link to Comment akak
akak's picture

Yeah, whatever happened to Balding_Snails?

It seems like silver's rapid ascent from around $28 to $37+ might have finally shut him up.  And just when I was really starting to enjoy his incessant chant that "it only costs $5 to pull it from the ground"!

Sat, 04/02/2011 - 16:49 | Link to Comment RockyRacoon
RockyRacoon's picture

Fret not.  They'll have their day in the sun -- which will quickly become overcast.  It will be our opportunity to buy a nice dip!

Sat, 04/02/2011 - 10:11 | Link to Comment Stuck on Zero
Stuck on Zero's picture

Pooh!

Sun, 04/03/2011 - 03:51 | Link to Comment TerraHertz
TerraHertz's picture

Surely the primary lesson of Japan for PM investors is floor safes. In concrete slabs.

Also, rubble and silt removal companies. Surprisingly lucrative business opportunity.

 

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