Currently by financing gold purchases in yen an investor can earn a positive carry of approximately 0.42% on an annualized basis. Further it should be noted that the positive carry has been a consistent feature of holding gold in yen terms for the past year.
Looking forward we would expect the factors that have driven this dynamic in the gold price in yen terms relative to gold in dollars to be maintained and perhaps even strengthen. In particular, the large divergence in monetary policy between the US Federal Reserve which has recently ended its asset purchase program and the Japanese Bank of Japan which has dramatically extended its program, would be expected to persist and perhaps increase into the foreseeable future.
The message here for investors that wish to maintain an allocation to gold in the face of a resurgent dollar is that the choice of financing currency is of crucial importance. While past performance is certainly no guarantee of how the future will unfold, investors buying gold in yen terms have been able to find some calm in the face of a gathering storm.
This article was written by Treesdale Partners, portfolio manager of the AdvisorShares Gartman Gold/Euro ETF (GEUR), AdvisorShares Gartman Gold/British Pound ETF (GGBP), AdvisorShares Gartman Gold/Yen ETF (GYEN) and AdvisorShares International Gold ETF (GLDE).