Morning from Europe!

The Japanese yen (JPY) is on the move again this morning, influencing the Asian appetite for precious metals. With the USD turning against Asian peers, a significant Western bid for metals is needed to outpace the waning interest from Asian accounts. 

According to our real rates spread model, USDJPY still has room to fall below 150, and equity/FI hedge rebalancing flows remain net USD negative into month-end. 

Several factors should have driven gold (and partially silver) prices up since the weekend: (1) bombings in Yemen and renewed turbulence involving Israel, (2) Chinese rate cuts indicating a need for local debasement hedges of CNY, (3) the Indian budget bill lowering customs duty on gold and silver, and (4) softness in real rates paired with a rebound in manufacturing gauges. 

Despite these highly supportive price factors, gold and silver are not really trading up, which is very telling for positioning, in our opinion.

Chart 1: Time for <150 levels in USDJPY again?