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I watched a commentator on television state that they're bullish on gold but only in yen terms. Are there financial instruments similar to the gld that let me choose the currency that gold is bought in? I assume that they think the price of gold will rise more relative to this currency? Can someone explain the logic?

Ideally I would pay USD to buy a fund that purchases gold in favorable currencies.

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4 Answers 4

up vote 11 down vote accepted

"Bullish in gold, but only in Yen terms" means that he thinks gold will go up against the Yen, but not against other currencies. The translation of this is that he thinks the Yen will go down. I'm not sure why he chose to phrase it like that, unless he is in the business of selling gold.

If you sell USD to buy Yen, and then use that to buy gold, that ends up being exactly equivalent to buying gold with USD, less a couple of extra transaction fees. If this commentator's predictions come true, then you will be able to sell your gold and buy more Yen than you started with. Unfortunately, you will lose all that gain when you convert your Yen back to USD. And you will pay extra transaction charges when you sell.

Unless you want to keep your money in yen after selling gold, then this advice is irrelevant.

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Thanks for the answer. Are there any institutions that maintain funds that would buy in yen terms? This would make it possible for someone to buy the fund in USD without being hit by the conversion fees. –  RohitJ Jun 16 at 17:47
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The point of the answer is that there is absolutely no difference between buying gold in USD, and converting USD to Yen and then buying gold with it (except for the extra transaction fees). –  DJClayworth Jun 16 at 19:06
    
Thanks for clarifying. –  RohitJ Jun 16 at 19:08

If you could learn anything from the recent crashes that would be to stop blindly listening to talking heads. If you do that, and check the facts yourself, you'd discover that:

  1. Gold is a lousy investment. Trading gold is a pure speculation, unless you use gold in manufacturing and want to hedge.

  2. Gold performed badly in the recent years.

  3. When you buy gold - you get a chunk of metal, when you sell gold - you get a bunch of cash. It will not be the same cash you paid for it, and doesn't have to be in the same currency.

  4. There are much better ways to bet on currency fluctuations than buying a volatile commodity.

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There are some financial instruments called future contracts. Nearly all of these are priced in terms in USD. If you want to buy gold in terms of Yen, You should buy Gold/USD and short JPY/USD contract. You should also make sure sizes of future contracts will match each other. These contracts expire in certain times of the year, require margins (money deposited into financial institution) thus require you know what you are doing.

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What the quote means is that someone who owned a lot of yen should use the yen to buy gold. (The theory is that gold will go up in terms of yen.)

But if you are a dollar holder, that doesn't meant the YOU should buy gold (with dollars).

It could be that the dollar is the strongest of the three. Then if you buy gold, it might go down in dollar terms, even if it goes up in yen.

More to the point, if you trade dollars for yen to buy gold using yen, (under my assumptions), you might lose more on the dollar-yen trade than you gain on the yen-gold trade for a net loss. And that's not counting transaction costs.

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