Germany Confronts Deflation
March 22, 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.
Regarding deflation…for that is the greater concern at the moment in Europe…it was reported on Friday that producer prices in Germany actually fell a very disconcerting 0.5% in February. Going into the report it was thought that deflation as indeed the order of the day, but only deflation of 0.2% month-on-month, so this was clearly a disappointment for the ECB. Year-on-year, the deflation in Germany was 3.0% compared to something closer to 2.5%. In all, not a good day for data for the German monetary authorities.
Turning to Australia, as noted below in our comments on the political situation, the rather new Prime Minister, Mr. Turnbull, has decided to call the bluff of the left-of-centre parties there and to demand support from his own coalition partners on budget and other political concerns and has threatened a vote of confidence in his leadership or face an election in July, one year ahead of schedule. On that news, the Aussie dollar is a bit weaker, carrying the New Zealand dollar, affectionately known as the “kiwi,” lower with it. Confusing political circumstances always… or almost always… leads to currency weakness.
As for gold, it is weak this morning and it has been correcting in recent days, with the resistance we had pointed out several times last week at the $1270-$1275 area proving formidable indeed. India has been wholly removed from the gold market of late, with the Indian buyers standing upon the sidelines awaiting a hoped-for cut in the duties paid on gold purchases. When one of the two largest buyers of gold… the Indians and the Chinese vie for the position as #1 these days…it is reasonable to expect that those who are bearish of gold take the lead, and for the past week or so the bears have done precisely that.