Japanese Bonds vs Gold: Is This Why Commodities Are Selling Off?

Tyler Durden's picture

Japanese bond volatility appears to have crossed the Rubicon. As we noted here, the Japanese Ministry of Finance warned that a rise in JGB volatility could cause a significant sell-off in JGBs (since banks will be hampered by their VaR models-driven risk limits, which have literally gone off the charts in recent days, and be forced to reduce holdings to meet those risk limits). It seems however, that since the BoJ is set to buy more JGBs than will be issued in the next several years as noted yesterday, that financial institutions are chosing to live with the record vol noted previously, opting to raise cash buffers and liquidity reserves instead of selling bonds in order to meet surging margin demands on their JGB holdings. The synchronicity between the price of gold (and other commodities) and the volatility of Japanese bonds makes this risk-driven perspective very clear. This leaves the question, what happens when the Japanese (or in fact global - since front-running the BoJ has been a big winner until a week ago) banks run out of 'other' assets to sell and their VaR models continue to demand more capital in reserve?

Since QE2, gold (and other commodities) have moved in inverted-lockstep with Japanese interest rate implied (and realized) volatility as the JGB margin demands oscillate.


Charts: Bloomberg

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Irelevant's picture

No, its not, and this is a dumb post.

Irelevant's picture

Pieces of paper are selling at a discount, if you need some paper gold place your order :)

The smart money is running from the COMMEX. Thats why the price is crashing. This is not about gold, the exchange is about to go bust.

Say What Again's picture

OK -- Europe is now closed for the week.  Let the ramp-ogasm begin.


Thomas's picture

Quote of the Day: "Gold bugs are frequently jerks.This [drop] vindicates the economic ideas of the economic elites." Joe Weisenthal


Joe: If you are reading this, I just gotta say that you are a certifiable moron.

BaBaBouy's picture


Sell Your Safest GOLD Assets, So To Support Your Garbage Holdings AD Infinitum ...

Irelevant's picture

Today represents one small dot on the time-line of history. During this 6000+ years history gold has been money. There is no fiat regime, in the history of mankind that has been accepted as money for more than 10 generations. What is going on today is irrelevant. But, take note, the price on the display, for GLD, will go to ZERO. If you cant touch it, you dont have it.

BaBaBouy's picture

... FF ...


AldousHuxley's picture

Japan tried QE and still had deflation.

US tried hyper QE and have inflation now.

Japan copy US....me too hyper QE


Scarlett's picture

First on Italy, now this:


German man caught 'smuggling' gold at Greek airport


Panafrican Funktron Robot's picture

Just do what the CB's do, go long phys, short paper.  It's truly a "duh" trade.

Doña K's picture

They are making  a point BTC and gold by association of down days are a bubble. Smoke screen. I just clicked for more coins.

ParkAveFlasher's picture

Get your surfboards ready, kids.

mdtrader's picture

Not sure we will see a ramp with the concern around JGB's and the carry trade. In fact we could see a decent sell off in stocks given the run the market has been on, but who knows in these crazy markets.

akarc's picture

Compare charts,

Gold 1974 to present

S&P same to present.

Don't think I want to buy the fucking dip in anything at the moment. I don't know, whats a cave in greece go for?

WTF_247's picture

Ha Ha Ha - you said "selloff in stocks"


toys for tits's picture

Considering that gold just hit a record high in yen, it could be the reason for some to take some profit.

Cognitive Dissonance's picture

I suspect "they" will change the rules to avoid a CRIMEX bust. At this point it is all about maintaining the illusion. A busted CRIMEX busts a key part of the illusion, that Gold is not money.

<Sell the kids, sell the spouse, sell your soul. Do it all and buy physical.>

RockyRacoon's picture

For some European/Cyprus perspective, this by Ambrose Evans-Pritchard is an eye-opener.


This whole PM take-down operation was in the cards for those who follow the daily activity.  From Ed Steer:

"Ted (Butler) did mention that JPMorgan et al may be trying to lure the technical funds into carrying a record short-side position in gold, like they currently have in both copper and silver, so we'll see if that's the plan or not.  But, if it is the plan, they'll have to set a new low price tick in gold...and some number well below $1,540 the ounce would be what it would take."

DeadFred's picture

My question is "where is support right now?". I see mostly air below so who wants to posit a guess about the possible bottom points? The first major trend support I see comes in just north of $1000. That won't happen without a major turndown in stocks and are they ready to let that happen?

camaro68ss's picture

im hoping $10, make picking up silver eagles easier by the handfuls.

Ghordius's picture

look, I know that AEP is a "libertarian" idol, here - and indeed he is a good journalist and knows a lot

but whenever it's about the EU and the EUR, he is disgustingly partisan

 even here, he reveals only a fraction of what he knows:

"You could say that this is ... punishment for the failure of Cyprus to deliver on its side of the bargain on the 2004 Annan Plan to reunite the island, divided by the Attila Line since the Turkish invasion in 1974.

Greek Cypriots gained admission to the EU on the basis of a gentleman’s agreement, then resiled from the accord. President Tassos Papadopoulis later deployed the resources of the state to secure a "No" in the referendum on the Greek side of the island. No wonder the EU is disgusted.


But there again, Greece behaved just as badly. It threatened to block Polish accession to the EU unless a still-divided Cyprus was admitted, much to the fury of Berlin."

Again, this is a fraction of all the things that the Cyprus Team did to utterly piss off anybody else - including in many cases the Americans, the Greeks and the Russians

They somehow bank on short memories (which is sadly often true for the US diplomatic corps, particularly the team that tried to get Turkey in the EU and also left disgusted by Cyprus) and have an "eastern taste" for bazaar diplomacy

But this time they broke too many diplomatic taboos. If you break one gentlemen's agreement to many, you stop to be treated as a gentlemen

Skin666's picture

AEP is an economic ignoramus.


RockyRacoon's picture

I guess there just wasn't time nor space to put the historic events in their totality into a small column.

For that he should be ignored and then drawn and quartered in the public square.

There is no satisfying some folk.

eclectic syncretist's picture

In any case, this is the best buying opportunity in quite some time.  I think those people who are scared or worried about today's action should think about what Jim Rogers is likely doing today.  What is China probably doing a lot of today? 

Dr. Kenneth Noisewater's picture

ABN AMRO halted physical delivery, why not COMmiEX? 

Winston Churchill's picture

Jim Willie said a major financial event was coming.

Good riddance CRIMEX.

ParkAveFlasher's picture

How about that Eric Sprott.  "Charity committments" ... lmao.  He was insulting TPTB with that. 

Tell you what, if I was a trader, and I'm not, I follow THAT guy around the floor.

HardAssets's picture

Jim Sinclair said that volatility in the metals is going to get crazy. Yeah, the PMs took a helluva dive today . . . but lets see what happens next week and later this month.

Personally, it doesnt impact me really all that much today, (though I sure as hell don't like it). Ive got my phys stack.

Now if it stayed at this level or went lower, - in a couple or three years or so, it'll make a damned big difference to me.  But that day isnt today.

HardAssets's picture

Massive push to begin the process for confiscating American citizens guns. Saber rattling over Korea and warnings about 'nuclear war'.  Massive attack on PMs while the stock 'market' is flat.  The pace of these engineered events is picking up. Smells like desperation is in the wind.

Anasteus's picture

I basically agree... a desperate shell game.

hankwil74's picture

Must be nice to be able to make outlandish claims without providing any supporting evidence

Cognitive Dissonance's picture

While I agree that Jim is at times outlandish go back a few years and read what he's said in the past, then compare it to what has actually gone down.

He's right much more than he's wrong. His curse is that he's almost always very early.

Anasteus's picture

Any evidence of this sort is intentionally hidden from you. You have to get by with finding supportive enough arguments and/or indications and trying to logically combine them together. Without courage to pronounce outlandish claims before finding the respective evidence we would still live on flat Earth surrounded by rotating stars in the center of the Universe.

HardAssets's picture

"Must be nice to be able to make outlandish claims without providing any supporting evidence"

Bernanke does it all the time


inca's picture

Assault On Gold Update

by Paul Craig Roberts

I was the first to point out that the Federal Reserve was rigging all markets, not merely bond prices and interest rates, and that the Fed is rigging the bullion market in order to protect the US dollar’s exchange value, which is threatened by the Fed’s quantitative easing. With the Fed adding to the supply of dollars faster than the demand for dollars is increasing, the price or exchange value of the dollar is set up to fall.

A fall in the dollar’s exchange rate would push up import prices and, thereby, domestic inflation, and the Fed would lose control over interest rates. The bond market would collapse and with it the values of debt-related derivatives on the “banks too big too fail” balance sheets. The financial system would be in turmoil, and panic would reign.

Rapidly rising bullion prices were an indication of loss of confidence in the dollar and were signaling a drop in the dollar’s exchange rate. The Fed used naked shorts in the paper gold market to offset the price effect of a rising demand for bullion possession. Short sales that drive down the price trigger stop-loss orders that automatically lead to individual sales of bullion holdings once their loss limits are reached.

According to Andrew Maguire, on Friday, April 12, the Fed’s agents hit the market with 500 tons of naked shorts.

more here: http://www.degaray.com/?p=3159

FL_Conservative's picture

So you're saying that they are selling gold (phys or futures) so they can hold onto JGB's?  If that is true, they deserve all the destruction that comes their way.

Nothing To See Here's picture

Not even the results of Nagasaki and Hiroshima are going to be close to the devastation that will result of Japan's money experiment, and they will have called for it indeed. Full-blown hara-kiri. The sun is going to rise above a fucking wasteland.

Yikes's picture

I'm trying to piece this logic together as well FL.  So commodities don't count as reserves?  I guess not or else why sell them.   

So the calculation is that Jap Banks think their gains on the sale of the JGB's will more than offset the losses (or smaller gains) on their gold sales?

Mine Is Bigger's picture

I don't think Japanese banks have any signifiant quantities of PMs on thier balance sheets.  It's just not what they do.

TeamDepends's picture

Rubicon.  Well, you knew it was coming.

RockyRacoon's picture

Santelli just flat out stole this theme and paraded it as original thought on the tube.   Rat.

MrNude's picture

All the talking heads are ripping off the Tylers and ZH outright now, I'll read something on here and 30mins-60mins later it will appear in my feed almost verbatim repeated by the usual suspects passing it off as their own work.

Jena's picture

That is nothing new.

jumbo maverick's picture

Oh prove that!

Mili Vanili

Schmuck Raker's picture

Japanese banks' losses are my gain. Oh well, so sorry.


catacl1sm's picture

The Bank never runs out of money. Simply write denominations on slips of paper until the Bank has enough of it's own paper. -From Monopoly Rules.