How to Profit off the Yen

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This morning currency traders had their world rocked.

Japan 's Finance Minister, Yoshihiko Noda, confirmed that Japan had intervened in the currency market to buy dollars in an effort to weaken the rallying yen. A strong yen, which has reached 15-year highs, is crushing Japanese businesses that rely on exports. As reported by the Associated Press this morning, Toyota Motor ( TM ) estimates that each 1-yen rise versus the dollar decreases the company's earnings by $351 million. Ouch.


With the yen up around 10 percent versus the dollar this year Prime Minister Naoto Kan took the reins to act on the behalf of domestic producers and push the yen back down. Statements from government officials this morning suggest that the country considers 82 yen per US dollar to be the right level at which the currency won't hurt Japan's economy.

So buy, baby buy was the move - and so far it's working. The dollar is up and the Nikkei rallied over 2 percent, led by exporters such as Sony Corporation ( SNY ) .

***But small cap investors aren't going to rush out and buy shares of Sony, Toyota, or start trading in currencies to take advantage of this move by the Japanese. There is a better way to play this development, and it's not as obvious as the above options.

When volatility in currencies ramps up there is one asset that investors should turn to for protection, and gains. You've probably guessed where I'm going with this if you've been a reader of this letter - so I won't keep you waiting.


I'm talking about gold. Gold is a safe haven asset that represents stability and wealth protection when countries start messing with their currencies. And I suspect we're going to continue to see more and more countries tinkering.

***Gold has been on a tear lately, rising above the $1250 level that served as resistance back in June. I suspect we'll see gold march higher.

You also know by now that my favorite way to play the strength in gold is through junior and mid-tier mining companies. Why? Because these companies see their profits grow exponentially as gold prices rise.


A quick example:

If gold prices are $1000 an ounce, the average gold miner makes about $400 per ounce in profit. But if gold rises to $1200 an ounce, they make $600 in profit, or 50% more! Gold rose 20%, and gold miners make 50% more profit. That profit is eventually reflected in the stock price.

Gold over $1,100, and surely gold over $900, is here to stay. As a result, gold miners stand to make significant profits. What's more, major mining companies are looking to increase operations without spending the millions required to explore for new mines. Exploration comes with significant risks - so these companies are looking to buy juniors and mid-tier producers that are close to production, or already producing.

As an article in yesterday's The Wall Street Journal stated, the choice for miners is,

"Buy or build? For the world's major mining groups, their wallets bulging amid tight commodity markets and natural limits to their own capital spending, the answer is both."

With volatility picking up in the currency markets, gold prices rising, and gold mining majors looking to increase production to take advantage of the surge in gold, small cap investors should be looking for exposure to small mining operations.

And I have just the one for you. But I can't give you its name. In order to find out what I consider to be one of the best opportunities in the small cap gold mining space right now you need to click here to request the special report on this opportunity.

This company has one of the lowest cash costs of gold in the industry, and its stock is a screaming buy right now. In fact, through yesterday's close shares have rallied 8.5 percent so far this week and the buying opportunity is starting to close.

Let me show you what I mean.


A subscriber to Small Cap Investor PRO wrote in recently asking if there was a price divergence between this company and the price of gold. When these divergences arise I point them out to subscribers so they can take advantage of the buying opportunity. This is what the subscriber wrote:

"A while back you had a chart in one of your e-mails containing the relationship between gold and [company X]. At the time there was a divergence between the two. [Company X] was not tracking with the price of gold and you mentioned that it would snap back in line and presented a great buying opportunity. Do you remember that chart?

Subscribers received the following chart showing the price divergence.

This was on September 9 th , and since then the gap has begun to close as this stock has rallied. Check out this chart, which I pulled today...

This company's stock has moved sharply higher over the last week, and while the gap is closing, this buying opportunity still exists. What's more, this is the second time in the last few months subscribers have been able to take advantage of this gap.

This is a great company, and the recent move by Japanese authorities to buy dollars and drive down the yen is just one more reason why safe haven assets like gold are likely to remain strong.

My favorite way to gain exposure to gold is through small cap mining companies - they have the greatest opportunities for growth, their profits grow exponentially as the price of gold increases, and they are attractive takeover candidates for mining majors.

Check out some gold mining small cap stock and let me know what your favorite ones are. I just might include your comments in a future issue. And if you're interested in checking out my favorite small cap mining company, click here and receive the special report on this company.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Stocks

Referenced Stocks: SNY , TM

Wyatt Investment Research

Wyatt Investment Research

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