The World Turns Its Attention To China
Dennis Gartman has been directly involved in the capital markets since 1974 and has been publishing his daily commentary, The Gartman Letter, since 1987. Mr. Gartman is a strategic partner with the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN) and lends his institutional insight to educate advisors and investors about trading gold in different currency terms.
It has been inordinately quiet over the weekend as the summer doldrums seem to have hit with a vengeance as Europe is effectively closed for the long August holidays enjoyed by the French, the Germans, the Belgians et al… the biggest news is out of China where the economic news continues to be rather ill. Firstly, producer prices there have fallen to a new six year low, with the trend down quite obviously becoming more and more seriously in the course of the past three years and even more seriously in the case of the past three months. Prices are down 5.4% year-on year according to the National Statistics
Bureau in Beijing. Going into that report the consensus in Shanghai was for a decline of 5.0% instead.
Too, exports from China have fallen 8.3% in July vs. that of a year ago and that was far, far worse than had been expected for going into this report the consensus was for perhaps 1% lower. Thus this is a stunningly weak number. Interestingly, looking a bit more deeply into this number we note that exports to Europe were down a stunning 12.3% year-on year while exports to the US were down “only” 1.3%. Finally, exports to Japan were down most of all, falling 13% year-on-year, making the case that not only are things in China weakening but so too are things dramatically weakening in Europe and Japan.
Too, imports into China were down materially: -8.1% year-on-year to be precise. This is of course very, very weak but at least going into this report the expectation was that imports would be down 8.0% so this was not quite as shocking as the export numbers were. In the end, China is still running a balance of trade surplus, but it is down sharply from the levels of a year ago, and materially down from the stunning surpluses earlier this decade. For the record, China had a balance of trade surplus in July of $43.0 billion, but this was nearly $10 billion less than had been forecast.
Turning to gold, we note firstly that the “usual” Friday rout against gold clearly did not develop this past Friday and that alone is worthy of note. The “forces” that align against gold … and we chose that word carefully for we do not wish to be lumped with the Gold Bugs who see evidence of government intervention in the gold market at every turn… seemed incapable of aligning bearishly last week and this we find of some modest importance. Secondly we find it interesting that gold was able to hold its own late last week despite a materially bearish article written by Mohamed el-Erian, Allianz’ Chief Economic Advisor who was also once the CIO of PIMCO and who is now the Chairman of President Obama’s Global Development Council, that appeared in The Financial Times of London. In that article Mr. el-Erian noted seven reasons why gold has been and should in the future remain bearish, ending with the statement that
Assessing the cyclical versus secular/structural balance of these seven factors, it is hard not to conclude that gold may well be experiencing an erosion in its positioning as a core holding in diversified institutional and retail investment portfolios. The more this happens, the more enticing it will be for “fast money’ to short the metal as a way of inducing even greater sales by disappointed core holders.