This Great Graphic is meant to provide talking points about the yen and gold. The charts were created by Bloomberg. The first grab shows the price of gold in yen terms. Gold hit a record high in yen terms in the middle of last week.
The following day, three pieces of data hit investors. The first was that rather than buy foreign bonds, as many observes and reporters claim, the MOF data shows that Japanese sales of foreign bonds in the first week of April were the largest in a year.
Japanese investors were not responding to more aggressive QE in the way investors had anticipated.
The second news item was the unexpected decline in U.S. retail sales and the downward revision to back month data, suggested that talk of a tapering off the Fed's asset purchases were unlikely.
Third, there was rising concern that gold reserves of countries seeking aid in Europe were on the table. There had been an earlier attempt to get Greece to sell its assets (which specifically included gold), but news that Cyprus may sell 10 tons of gold to raise ~400 mln euro spooked investors who are still wrestling with the extent to which Cyprus will be a template for others seeking aid in the EMU.
The lower chart shows a 60-day picture of the last five years for the yen (not the dollar) and gold prices conducted on the basis of percentage change. Gold and the yen have been mostly positively correlated, though there have been relatively brief exceptions. What is striking is how sharp the break down has been most recently. We suspect that many leveraged accounts were short yen and long gold (as well as other assets in a large carry trade) and the powerful short squeeze in the yen, triggered a the unwinding of gold (and other assets) that snowballed and took a life on of its own.