Why Gold             is lagging Safe have losses & Yen is outperforming

1. When looking at Gold             vs Yen or XAUJPY             it becomes apparent why Gold             is lagging the broad safe haven losses that we have seen during this risk-recovery rally - investors are buying gold             over Yen - so gold             appears to be their preferred safe have asset to hold in a risk-on rally - likely a function of perceived future weakness of Yen? BOJ/ JPY Govt             stimulus?

- This may be the case for three reasons; 1) Investors speculate JPY is due further downside gains compared to gold             ( Gold             is the stronger Risk-off asset) and they speculate that BOJ may deliver a big devaluing package and/ or 2) They believe JPY is more overvalued than Gold             so they sell their JPY holdings over their Yen. 3) Gold             is more illiduid compared to Yen e.g. investors have been able to sell their Yen faster/ easier than their Gold             as Gold             is a physical asset and FX markets are the most liquid markets in the world - whereas Yen is pure currency which is convertible at any level.


1. This infers that investors expect Gold             to continue to outperform in risk-off rallies going forward - which makes sense given Gold             is already up 30% this year vs Yen's only 20% up - so they see further upside for Gold             . This could be the case as the market discounts the probability that the BOJ/ JPY govt             delivers a large easing package which devalues the JPY.

- Therefore Gold             shorts should be careful during this risk-on rally as when the tides change back to the trend of risk-off, Gold             is more likely to rally aggressively in comparison to Yen.

Trading strategy:

1. Buying Gold             on the risk-on reversal (to risk-off) - we should allocate the liquidity to Gold             over Yen to take advantage of this investor sentiment.

2. The market is clearly discounting quit aggressive JPY weakness when relatively compared to other safe havens - likely due to BOJ/ JPY Govt             stimulus worries.

- Knowing this, we should potentially position for JPY shorts - since the market clearly is positioning for some serious JPY weakness relatively - a big BOJ package?

3. Whilst safe havens have outperformed risk by 14% (20% safe havens 6% risk-on assets - pre-brexit) - Gold             has also outperformed Yen by 7%.

- Therefore in risk-off rallies we SHOULD expect Yen to underperform Gold             e.g. GOLD             should be brought over Yen.

- In risk-on rallies (now) we should expect Yen shorts to outperform Gold             as Yen is considered the poorer asset - USDJPY             longs are better/ safe than Gold             shorts (hence supporting my long $yen view).

*Check the attached posts that also support the long $Yen view in this market*
Thank you Sir :D
My pleasure - be sure to check my other posts out if u have interest in other assets too :)
Dguaman QuantumLogicTrading
I will :D
problem is how do you know when is risk on and off. it may start risk on in Asian session and suddenly its risk off in EU.
Err well what youre describing is more of an intraday movement - risk-on risk-off usually describes the macro picture e.g. for the last 2wks the markets have been risk-on and previous to that they were risk-off.

Riskon riskoff move in weekly/ monthly cycles and describe the trends we see between risk assets and safe havens.. so there isnt actually a "rush" to spot the trend as such. e.g. my signal for this risk-on trend to be over, and to buy gold, is when gold has 2/3 up days or Yen breaks the 104 level and holds - one or both of these conditions signals to me that we are risk-off and that i should buy gold.
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