When Japanese Yen Intervention Runs ETFs (FXY, UUP, UDN, GLD, SGOL, SLV)

After seeing headlines “The Yen at Multi-Year Highs Against the Dollar” for days, we finally saw a sudden change.  Japan intervened on its currency to prop up the US Dollar.  This may not be free-market mechanisms at work, but Japan does still want to be able to sell its products to the US and China.  We are seeing key moves in CurrencyShares Japanese Yen Trust (NYSE: FXY), the PowerShares DB US Dollar Index Bullish (NYSE: UUP), and the PowerShares DB U.S. Dollar Bearish Fund (NYSE: UDN), but it is hard to ignore “the new currency ETFs” that are the precious metals SPDR Gold Shares (NYSE: GLD), the ETFS Physical Swiss Gold Shares (NYSE: SGOL) and the iShares Silver Trust (NYSE: SLV).

CurrencyShares Japanese Yen Trust (NYSE: FXY) just hit a new high yesterday of $119.35 as the Yen closed in on 82 yen/$1.00, but this is down nearly 3% at $115.58 today.  Normally this trades 392,000 shares a day and we have already seen over 450,000 shares trade in 2 hours of trading.

The DB US Dollar Index Bullish (NYSE: UUP) and the PowerShares DB U.S. Dollar Bearish Fund (NYSE: UDN) are moving opposite of each other, as you would expect.  The UUP is up only 0.34% at $23.60 and the UDN is down 0.30% at $26.23.  The reason that the move is more muted is because the UUP is backed with currency futures and is designed to replicate the performance of being long the US Dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.  This is where diversification hurts rather than helps.

What about China?  For all practical purposes, China is pegged to the US Dollar.  So Japan’s intervention actually helped out the US dollar AND the Chinese Yuan.

What about gold?  Gold is the new currency and it is pulling Silver with it.  All you had to do was see the record prices yesterday in the SPDR Gold Shares (NYSE: GLD), the ETFS Physical Swiss Gold Shares (NYSE: SGOL) and the iShares Silver Trust (NYSE: SLV).  The Silver ETF hit a new high of $20.19 today, but the highs in the two gold ETFs were yesterday.  For a size comparison, Yahoo! Finance noted that the silver ETF has some $5.2 billion in assets and the Gold ETF has $48 billion in assets.

As the Yen went close to 82 Yen per $1.00, Japan figured out it had to unload on the Yen.  intervention rarely comes only once.  Expect more  intervention.  The problem is that intervention doesn’t always work.  Gold may be higher than any of us would ever want to pay, but for currency investors gold is the new currency for the future.  After all, governments can’t just print it and there is a finite amount of it.  Silver still makes sense for street level barter economics compared to gold, but that is a different argument.  Paper money just isn’t worth what it used to be, at least not here.

JON C. OGG