Japanese Seek Refuge in Bullion as Yen Slumps, Inflation Looms

The price of gold has been fluctuating wildly, dropping one day and hitting new lows and then the next day the price is up again. While an improving economy may draw money from gold, certain economies, Japan specifically, are certainly filling their reserves with the precious metal. Japan is going to be buying a lot of gold in the years to come, and “consumers are poised to become net buyers of gold for the first time in eight years.”

There has been a direct correlation created between the drop in the Yen and the price of gold. “Every one-yen depreciation in the Japanese currency against the dollar can boost bullion prices in Japan by 50 yen a gram, assuming the international market is unchanged…” meaning that as the value of the Yen drops, the change in price of gold will only intensify.

I think that by looking at gold, a good picture is given of how Japan’s consumers feel about the inflation plans set by the government, and it’s saying they are confident that the government is going to be successful. There has been a lot of doubt surrounding Japan’s inflation initiative, but Shinzo Abe has firmly supported the plan and does not seem to be wavering. I think that Japan will successfully decrease the value of the Yen. However, I thought of a major concern while reading this article. Growth is largely created by increased consumer spending, but that spending does not do much to aid the economy if consumers are just purchasing gold. I think that, if the gold buying pattern continues, Japan is going to have a much harder time creating inflation, since the consumer mindset is still stuck on the idea of conserving money, rather than the need to buy more goods.

Source:
http://www.bloomberg.com/news/2013-04-23/japanese-seek-refuge-in-bullion-as-yen-slumps-inflation-looms.html

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