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Posted by on Jan 12, 2016 in Market Insight

Gold Starts the Year as the “Cleanest Shirt”

Gold Starts the Year as the “Cleanest Shirt”

January 12, 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 Yen is strong and so too the EUR relative to the US dollar, but otherwise the US dollar is stronger against nearly every other currency in our price matrix reported in our newsletter each morning. It is particularly so relative to the “other” dollars…the Canadian, the Australian, and the New Zealand dollars. Stock prices were weak to start the new year and they are particularly so again in China, as capital is moving out of China and is going to safer harbors around the world, which for the moment seems to be to Japan, although we find that rush into Japan to be very strange indeed.

Concerning the Chinese Renminbi we shall continue to say that the media’s sudden focus upon the currency’s devaluation seems a bit extreme for the very simple reason that no one anywhere was concerned as the Renminbi rose in value…relentlessly… from over 8.0 Rmb/dollar back in late ’05 to very nearly 6.0 Rmb/dollar in early ’14. We heard no one decrying the currencies’ rise; there was no great wailing and gnashing of teeth then as the currency rose and created a deflation in China. The Renminbi’s strength went wholly unnoticed as it fell by nearly 30% in a decade. Now, however, as the Renminbi has risen from just a bit over 6.0 to 6.6 Rmb/dollar there is a rending of cloth and a great wailing of voices and this we find somewhat odd.

Nonetheless, and that having been said, the fact that the currency has fallen 10% in the course of two years is still very much worthy of some note, and clearly it has the attention of the capital markets for the moment at least.

Regarding gold, we note again that it has led the commodity markets to the upside in the first week of trading for the year, but that is not a hard task to have accomplished for few if any other commodities actually traded better last week. Gold had the upside column to itself on balance for having finally gotten through the “seller” that had stood hard upon gold at $1080-$1085 and had tried to keep it from rising that selling was finally sated and like the proverbial “beach ball held under water,” once that grip was lost the prices rose strongly.

The only thing that has kept gold from rallying even more strongly is the fear of margin calls in the equity market for clearly the margin clerks are sharpening their pencils and looking to issue those calls in the course of the next several days. They shall look to gold as a place to raise capital to meet those margin calls, and we’ve seen that before, fearing it again.