Gold, Silver, Yen & S&P Correlation

Last week Craig Hemke (aka Turd Ferguson at published an interesting and intelligent article about the post 2011 relationship between the Yen, Gold, and the S&P.  Some quotes from his article:

“…the price of gold is now largely determined solely by fluctuations in the yen.” 

“So, if you’re baffled why ‘fundamentals don’t seem to matter’, it’s because fundamentals don’t matter.  There are very few human traders of size left and the computers control everything.  In this environment, arcane notions such as supply/demand and company fundamentals are insignificant.  The primary driver to these ‘markets’ are changes to the USDJPY.  Control that and you control everything else.”

In other words:

  • HF Traders sell the yen, it goes down, gold goes down.
  • If the dollar goes up causing the yen to go down, gold goes down.
  • If the Fed talks the dollar up, gold goes down.


  • HF Traders sell the yen and it goes down, the S&P goes up (for the last 4 years).
  • So yen down, dollar up, and S&P up. Wall Street is happy.

Look at the charts of weekly yen (yen per penny) and smoothed monthly yen, gold, and the S&P 500 to confirm the above correlations.




Yen and Gold


Yen and S&P

As you can see the smoothed graphs of monthly yen and monthly gold are similar.  Over the last 8 years of gold prices rallying and crashing, the statistical correlation has been about 0.74.  Since the all-time high in gold prices in August 2011, the yen-gold correlation has been an astonishing 0.96.

Similarly, the smoothed graph of monthly yen and monthly S&P shows an inverse correlation.  Yen down, S&P up, and Wall Street, the Fed, and the Bank of Japan are happy.  The statistical correlation over the same 8 year period has been about negative 0.49.  Since the all-time high in gold prices in August 2011, the yen-S&P correlation has been a negative 0.97.

It is the same story with silver.  The correlation between smoothed silver and smoothed yen over 8 years has been about 0.80 and about 0.97 since August 2011.

The amazing correlations subsequent to the August 2011 all-time high in gold are rather suspicious, and certainly support Craig Hemke’s analysis.  I think the central banks watched gold hit an all-time high of nearly $2000 per ounce and they retaliated.  The High Frequency Traders and other “insiders” heavily shorted gold and the yen and bought the S&P.  It has almost been a “one-way” trade since then.  It is amazing that the yen, gold, silver, and the inverse S&P have been so tightly correlated (over 0.95) for almost four years…

Mr. Hemke’s conclusion is:

 “anyone worried about a renewed drop in gold should only be concerned with two things: 

  • Can the Bullion Banks find a steady supply of readily-deliverable gold at prices below $1,150?…
  • Is the yen going to make even deeper lows?”

Whether or not you believe that computer driven “algo” trading controls the paper gold, yen, silver and S&P markets, the correlations are stunning.  If you have another theory, we would like to hear it.

In the meantime, T-Bonds had an unusual 3+ Sigma rise in March, the dollar and the S&P may have peaked, and gold and silver are stronger.  It looks to me like the dollar, T-Bonds, and the S&P have rolled over, or will turn down soon.  By implication, gold and silver should rally.

However, you can easily find analysis from large banks that suggests gold prices will remain flat or fall for several more years.  We have heard it before and they will probably make the same bearish comments for the next decade.  Other analysts, such as Larry Edelson have published comments.  He said:

“No way has gold bottomed…there is no major support until the $900 level, which is where I expect gold to bottom.”

I DISAGREE.  We shall see.

When High Frequency Traders, central banks, and political agendas are in control, the price of paper gold can be suppressed and bonds can be levitated.  The real questions are:

How much longer can the HF Traders and central banks manage the paper markets to the detriment of the real market for physical gold?

When will Asian demand overwhelm the western paper markets?


Note:  My empirical model for long-term gold prices indicates a “fair” price for gold of $1,527 for 2015 and much higher in subsequent years.

Read:          Bill Holter    Triggers

Gary Christenson

The Deviant Investor

4 thoughts on “Gold, Silver, Yen & S&P Correlation

  1. Hi Gary,

    I’m just finishing your book – which is excellent, thank you – and thinking through the GEM model, and considering using it as one of three gold price checks, the other two being Alasdair Macleod’s “Fiat Money Quantity” and the Priced In Gold site’s “Half Life of the US Dollar.”). All suggest significant underpricing. But my immediate interest, as strategic energy analyst, is what impact the unexpected drop in oil price will on the GEM forecast.

    It is proving exceptionally difficult to forecast where oil goes from here, and I’ve seen equally plausible arguments suggesting that it could fall further, or that a rise in around 18 months time is most likely. And I’d wait the probability’s 25% to further falls/sideways, 75% steady rise from end-2015 onwards.

    And I wondered what you thought these two different scenarios would have on GEM forecast?


  2. well its great to have TF on here, Gary, and, as usual, his points are well taken.
    For me, its more about time ….not price…. for a gold bottom. if one believes the troika is positioning to contain a Grexit…..and the greeks are positioning to get the troika to take the blame for it…….as i do…..then the gold low should be aready in or maybe only slightly more probably yet to come before Grexit…. as long as the greeks get one more 4 week bailout which i believe they should get…..i look for possible low in the next 6-8 weeks
    At that point world econ contagion fear should overcome dollar rise on EUR fall for a dollar denominated gold price.
    but by oct 1 we see the beginning of the debt/credit/entitlement blowup.
    hopefully, they can keep the peace thru it all, tho in places i do not thing thats possible.

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