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December Market Update: Will The Japanese Yen Be The First Currency To Fail?

There is a lot to cover. Beyond what you can read on our Gold News Blog, I want to highlight some important stories developing related to gold and also want to make you aware of some promotions we have just in time for the holidays. If you just want to see the promotions, just scroll down to the bottom of this email.

Spot prices and Technical Analysis:

Gold and silver have come back to their trading ranges (still close to multi-year lows) after a sharp selloff late Sunday night when the market opened in Asia and Europe. The selloff came on the heels of the Swiss voting "no" to a referendum to increase its Central Bank gold reserves. By Monday morning however, the prices had regained nearly all losses and opened in New York almost where they closed the Friday before. Here is a snapshot of current prices and moving averages.

Gold: $1191.00 (-$16.00)

Silver: $16.30 (-$0.30)

Moving Averages based on NY Close

 

Gold

Silver

50 day

$1,202.80

$16.67

100 day

$1,239.60

$18.08

200 day

$1,271.60

$19.07

Story #1: Gold is in backwardation again

Backwardation in gold and silver is a phenomenon that could only exist in the world of fiat currencies - where gold has been outlawed to a commodities exchange platform. It has been appearing periodically since 2000 and more frequently post 2008. Simply put, backwardation occurs when the price of gold in the spot market (physical) is higher than the price of a futures contract (physical gold delivered in a given time frame). This spread is an incentive to buy a futures contract (at the lower price) and sell in the spot market, pocketing the difference. It is a supposedly "risk free" trade - as long as the contract makes good on its claim to deliver the metal. The very fact this spread opens in gold markets and does not compress, indicates there must be some risk with buying paper claims to assets instead of the assets themselves. Take away: Gold is trading with scarcity right now.

Story #2: Japan's sovereign debt is downgraded

In previous updates we have detailed several signs as to why the global economic recovery is not what it's cracked up to be. There are other economic events which indicate a growing systemic risk to the modern debt-based fiat system. Japan is perhaps the closest country to the monetary cliff than any other. Earlier this week Moody's downgraded Japan's sovereign debt rating citing the following:

"heightened uncertainty over the achievability of fiscal reduction goals…[and]increased risk of rising JGB yields and reduced debt affordability over the medium term" among other reasons.

For a full description, click here.

The yield on the 10yr Japanese bond is now trading at 0.41%...and falling. Falling rates are a symptom of capital destruction on a large scale. Not only does it distort price signals to market participants (you and me), it creates an ever growing debt burden. This debt burden looms large over anyone who uses paper currencies today - dollars, euros, yen, francs you name it. If we hold this currency we are a creditor to our heavily indebted governments. The ever increasing debt burden of all major nations (the US is above $18trillion) is the one problem that no one really seems to be addressing in mainstream finance or in Washington D.C.

Having suffered from nearly 3 decades of "QE-esque" stimulus from its central bank, the yen has fallen over 12% this year (10% against gold). Taken together with the fact that the number one buyer of Japanese debt is its own Central Bank and you have a deadly recipe that ultimately leads to sovereign debt default and its corresponding currency collapsing. The Yen could be the first domino to fall in the modern house of cards that comprises our monetary fiat system. We will continue to closely monitor the ongoing events in Japan. I hope the Japanese, along with all major governments, wake up to this reality before it's too late.