Gold Yen Ratio

Correlation of Japanese Yen with Gold

Gold Yen Correlation

Conventional wisdom has been abuzz lately about the Gold Yen Correlation. The two charts below are courtesy of my friend James Cutting of Nautilus Capital. Indeed, on the basis of a 63-day Gold Yen Correlation (I have no idea how James determines these time periods) there is presently a .85 correlation between the two markets. The second chart in this series shows that since 2013 there has been a fairly consistent correlation of at least .50 between the markets.


Yen Gold Correlation 2- Factor Trading - Peter Brandt

My experience since the mid-1970s is that these correlations come and they go. The chart of the 52-week Yen Gold Correlation dating back to 1990 shows several brief periods when the two markets were negatively correlated. My guess is that this period of .80 Yen Gold Correlation will not last – and that a negative correlation will once again emerge, even if for very brief periods such as been the historical case.


Yen Gold Correlation - Factor Trading - Peter Brandt


As a trader I actually pay very little attention to correlations that become conventional wisdom. There is a simple reason for my lack of interest in such phenomena – I cannot enter a Gold order in the spot Yen market and I cannot enter a Yen order at the Comex.


There is yet another point I want to make about the relationship of Yen and Gold. For a moment pretend you were a Japanese investor who became convinced 15 years ago that your home currency would become and remain highly correlated with Gold. A logical conclusion of this thought would have been that your assets would perform equally well sitting in Yen or invested in Gold. Yet, as shown on the quarterly chart of Gold priced in Yen, Gold has appreciated four- fold against the Yen since 2000. That is hardly what I would define as “high correlation.”


Gold Yen Correlation2 - Factor Trading - Peter Brandt


Frankly, I am highly skeptical of a causal relationship between Gold and Yen prices. Rather, I simply think that Gold priced in Yen is in a broad trading range, as shown both on the quarterly and weekly chart. The current Gold Yen Correlation is coincidental, not causal.


Gold Yen Correlation - Factor Trading - Peter Brandt


When I first entered the trading business the conventional wisdom was the high correlation between Wheat and Gold prices. I can also recall an extended period of time with a near 1.00 correlation between NFC teams winning the Super Bowl and advances in the U.S. stock market. The current Yen Gold Correlation will end up in the same scrap heap of history.



Factor Membership

Peter Brandt is a 40+ year veteran of trading.  Through his Factor Service, members receive:

checkTrading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
checkWeekend Update: 10-16 pages full of in-depth chart analysis and charting commentary
checkAlerts: Detailed information on specific charts as unique opportunities present themselves
checkMarket Commentaries: Communications on specific topics regarding market speculation and trading distributed periodically
checkWebinars: Monthly member-only webinars where Peter speaks about current conditions and fields member questions
checkKnowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of content
checkAutomatic notifications: Email and social media notifications are sent out when new content is published


View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work.   Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about.  For more information watch my 30 minute webinar where we cover the Factor service in depth.

I hope you will consider joining the Factor community.

Factor Trading - An Introduction