2016 Opens With Chaos
January 4, 2016
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.
The FX market is opening the year chaotically, with the Asian capital markets thrown into panic as the Caixin/Markit Purchasing Manager’s Report for December came in at 48.2 (which we shall round to 48 for our purposes), down from last month’s 48.6 and below the market’s consensus forecast of 49. This is the 10th month in a row that this index… materially followed by market participants…has been down month-on-month and as evidenced remains well below the all-important 50 level once again. Further, most of the “internal” indices such as new orders for exports and employment also fell, with the latter having fallen for 26 months in a row! Things clearly are not going well in China, and as has been the case for quite some while, as goes China so goes the rest of the world… or at least that is the psychology of the moment.
If we can backtrack for just a moment, we begin the year then by noting that the dollar rose against almost every other currency last year, rising from 1.2153 vs. the EUR to 1.0860, or 10.6%. It rose from 119.55 Yen/dollar to 120.30, or a much more modest 0.6%. It rose 1.2% relative to the Swiss Franc; 19.5% vs. the Canadian dollar; a stunning 49% relative to the Brazilian Real; 16.7% vs. the Mexican Peso; 24.8% vs. the Russian Ruble; 4.4% vs. the Chinese Renminbi and 5.4% vs. Sterling.
But it was not all wine and roses for the US dollar; it did fall relative to some of its most important trading partners and they were the ones, interestingly, that were supposedly most seriously and detrimentally to have been affected by the weakness in the Chinese economy and by the weakness in commodity prices: the Aussie and New Zealand dollars. The Aussie dollar rose from .8190 at the end of last year to 87.60 this year, or an increase of 7.0%, while the Kiwi rose from .7840 to .8198 or 4.6%. This, we find interesting.
Turning then to the precious metals, we note firstly that for the year last year gold in US dollar terms fell from $1187/oz. to $1060, or 10.7%. On the other hand, and worthy of note, gold “funded” in Aussie dollar terms fell by an even more severe sum than did US$ denominated gold, falling 17.7%, making unhedged gold production in Australia a very, very difficult undertaking indeed.
That said, gold is firmer this morning and has been rising steadily even as the dollar has weakened markedly relative to the Japanese Yen, with the buying predicated upon the political confusion in the Middle East. Technically gold is and has been trying to build a base in US dollar terms between $1050-$10.65 and has been doing so since mid-November. One bearish raid after another has befallen gold, but each time that raid has been turned back. The “game” does not change in favour of the dollar/gold bulls until $1085 is taken out to the upside, but for now at least the bears have been turned aside.