Bank of Japan Tries To Do More
December 23, 2015
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 Yen has fallen marginally following the surprises from the Bank Of Japan last Friday where in the Bank confused everyone in the forex and equity markets there by stating that it was “expanding” its open market operations, which initially was seen as an expansion of the Bank’s full balance sheet but which in the end was merely an expansion of the types of assets the Bank was prepared to buy. Initially the Nikkei rallied several hundred points and the dollar rose more than 1.5 Yen, and then within a matter of minutes the Nikkei fell by that same amount plus several hundred points more and the dollar fell by 3.5 Yen. We had not seen that sort of volatility since the earthquake and tsunami of several years ago. There are “reverberations” in the capital markets still.
The Yen’s strength is, in our opinion, manifestly illogical and is the result simply of end-of-year and Christmas illiquidity, aided… if that’s the proper word… by the limited trading capabilities on the part of the world’s banks following the ill-advised tenets of the Dodd-Frank legislation that has so materially limited bank participation in the forex and other capital markets. There is every reason for the Yen to weaken toward 125 Yen/dollar… and to move eventually far beyond…after the turn of the year and there is every reason to believe that the Yen shall weaken… or at best to hold steady… in response to the illogic and volatility of last week’s move.
Gold is firmer, having risen smartly at the end of last week and having held those gains in Asia dealing thus far and has indeed pushed ahead a bit further. Gold in US dollar terms has held its lows for the past several months at the $1045-$1055 level and that we find impressive. More impressive is that gold in non-US dollar terms has held much more certainly than has gold funded in terms of the US dollar.
Finally, the “net” position of the “Commercials” in the futures market in gold has moved relentlessly over the course of the past four years from one of massive net bearishness… i.e., massively net short… in ’10-’11 to one that is almost now net long. This is very important news for the “commercials” reached their most bearish position right into the highs of the market and as prices have fallen they’ve properly and steadily reduced the size of that short position, while the public has been net long all of the way down, losing vast sums of money in the process.
Now that the public has effectively been driven out of the gold market it is proper… or at least it is more proper… to err bullishly on gold.