Japan's YEN Selling Is Boosting Precious Metals.

Gold broke out of a classic cup-and-handle pattern yesterday right before the Bank of Japan announced it was buying dollars in a bid to weaken the yen. The yen has strengthened significantly since June making life extremely difficult for Japanese export companies. The economy in Japan is weakening and they’re also facing their own sovereign debt issues, which haven't yet surfaced. However, more important is how the markets are reacting. This reaction in the yen will likely be short-lived. Although it may be an immediate Band-Aid, the intervention efforts may be too little for the global forces of supply and demand.

This yen selling didn't transfer to purchasing US dollars. Yesterday and the past several weeks there's been a major rush into precious metals. The dollar’s chart is giving warning signs of an imminent collapse. Certainly the dollar hasn't reacted positively to this announcement.(This will translate into renewed weakness in in Crude Palm Oil as the Ringgit pops.)

The dollar is slicing through its 200-day moving average and the 50-day clearly has acted as resistance. I believe a major transfer of dollars into precious metals is occurring. A death cross is imminent on the dollar and this is occurring simultaneously to new high breakouts on silver and gold.

Usually a weak dollar has been bullish for stock markets as it meant investors were less risk-averse. This isn't the case now. Even though the dollar has fallen since June the markets have failed to rally significantly. Instead, precious metals and mining companies have broken out of key resistance.

The S&P 500 has been in a sloppy and volatile base for four and half months and the poor price volume action tells me a breakout above $114 is highly unlikely. A third failure may be imminent as overbought conditions are combining with previous resistance.

This cup-and-handle pattern in gold is extremely bullish and could be the beginning of a next leg higher. It's a sign of a major consolidation and this recent breakout may bring in more investment interest by institutions who are concerned about currency and sovereign debt issues. SPDR Gold Share’s (GLD) pattern is very rare and this setup tends to indicate a major move into hard assets.

If we see a decoupling of the dollar versus gold continuing, expect to see more buyouts of resource companies from Asia. Right now we're witnessing a massive transition of wealth in the form of currencies (in particular the dollar), bonds, and equities into silver and gold.