Can the India/Pakistan Skirmish Lift Gold?
October 3, 2016
Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.
Commodity prices are just a bit stronger as the average of the two broad indices we mark here each day have risen a bit more than ½% and with the “confused” nature of the forex market offering little in the way of market direction, thus leaving each of the commodity markets to their own fundamentals. However, just scanning across the charts of the markets, many do seem a bit “toppy” at this point… maybe.
Turning to the grains, they are quiet with the harvest now in full and/or fuller swing. The weather this week across much of the Midwest and northward into the Canadian provinces looks really quite good. There will be some rain of course that may slow the harvest in some scattered areas, but on balance warmer temperatures than usual and dry conditions will move the harvest right along. We’ll see just how “along” the harvest is in the weekly USDA crop progress reports due out later this afternoon.
China is “out” on holiday this week so that shall slow trading activity rather materially and the focus then shall be upon the next major crop report from the USDA next week on the 12th. The early reports from the fields are for soybean yields/acre increasing perhaps 1-2 bushels/acre while corn yields very likely fell 1-2 bushels instead. That shall mean that the “bean” crop will be 4.1-4.2 billion bushels in size while the corn crop will be 15.1-15.2 billion…huge/enormous/record/stunning crops. But then again, everyone knows that already and so from this point on it is not the size of the crops that shall be important but the demand for them instead that shall be.
As for gold, firstly the “power” this week passes from the Chinese… out on holiday today as noted above for the National Day (which was October 1st) and the National 3 Week/Golden Week celebrations… to India and the Indians seem properly pre-occupied with the military problems on their border with Pakistan. This, we would suspect, would put a bid into gold, but thus far that is simply not happening.
Friday, gold sold off as the situation regarding The Deutsche Bank seemed to be resolved and as the fever that struck the capital markets early in the day gave way to quieter, lesser concerns as the day wore on. Gold is holding its own this morning, trading above the $1310- $1315 support levels, but the damage wrought upon gold/EUR on Friday remains disconcerting to us rather obviously. Having traded to €1190/oz. at one time and seemingly prepared to move upward through the obviously severe psychological resistance at €1200/oz., the news that the Deutsche Bank was going to escape its worst fears regarding fines imposed upon it by Washington send gold plunging to €1165-€1170/oz. where it trades this morning.
We are still of the mind that the monetary expansions being undertaken by the Fed, by the ECB, by the Bank of Japan et al shall be inflationary… at some point… and eventually shall be supportive of much higher gold prices; but for now, our arguments are falling upon the deafest of ears.