Does QE Mean Quantitative Experiment?
October 19 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.
Looking at Europe and the ECB specifically, the Bank’s monetary policy committee meets Thursday in Malta and we begin our discussion by noting that Mr. Draghi has promised that its current experiment with QE will continue on through September of ’16. In that “experiment,” the Bank has said it will buy €60 billion of “assets” each month and it has done so thus far. The question is, shall the Bank make any statement this week that it will either extend the period of those purchase, or increase the monthly size of those purchases or sit tight with the current program and wait? We suspect that the Bank shall sit tight, continuing with its present “experiment” but if it chooses to make any public statement… which we do not think that it shall… it shall be toward greater rather than lesser expansion.
At this point we are certain that although the monetary authorities here in the US are confused as to whether it is right to tighten or to ease further, the monetary authorities in Japan and Europe are united in their notions that their monetary aggregates have to be further expanded and that easier policies are the only proper direction. We are dismayed by the confusion abounding in US monetary policy and this confusion has led to a round of US dollar weakness of late, but on balance it seems clear to us that when monetary push comes to monetary shove the US authorities next move shall be to tighten, but that this is not going to happen for a very, very long while in Japan and/or Europe. Indeed, it is not even going to be debated, with the only debate there in both “countries” as to the amount of easier policies shall be appropriate. Tightening is wholly… and properly… off the table.
That said, gold has had an adventurous rush to the upside in the course of the past several weeks, and some consolidation… indeed some reasonable correction of some consequence… is already upon us. We said here mid-week last week that a correction substantial enough to return the market from being over-bought to quickly over-sold would take dollar “funded” gold back from nearly $1185/ounce to perhaps $1160-1165, the level that had proved to be formidable resistance in the August rally. Previous resistance levels, once broken through to the upside, very often prove to be levels of support at some later point, and we are now approaching that “later point.”