Gold Tries to Figure Out the Italian Referendum
December 5, 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.
Gold traded to $1182/oz. in US dollar terms and to 1120/oz. in EUR terms earlier today as the first reports of the “NO” victory in the Italian Referendum were circulating, but since then gold has waned and is trading lower now than where it stood late on Friday in dollar terms, although it is a bit stronger still in EUR terms. On balance, however, this is clearly not bullish action. On balance, the reaction is manifestly bearish (for gold) even though the news out of Italy should be manifestly bullish news and yet the response is anything but bullish… thus far anyway.
Friday, gold got a strong fundamental boost when Turkey’s President, Mr. Tayyip Erdogan (pronounced Airdoe-wan) called upon his countrymen to convert their dollars and their EURs into gold and/or into the Turkish lira as the government, according to Mr. Erdogan, has no choice but to cut domestic interest rates in order to engender economic growth… a prospect that has obviously pushed the Turkish Lira sharply lower. Speaking at a meeting to celebrate the opening of a new automobile showroom… really, we are not kidding; that was where he was on Friday; but this was reported to be the largest such showroom on Europe so perhaps he can be forgiven for being there… the Prime Minister said simply that “Those who keep foreign currency under their pillow should come and turn that into Turkish lira or gold…. I say there is no option other than cutting interest rates, and I say no more. We will open the way for investors with low interest rates”.
Interestingly, as Erdogan was calling for lower rates, the Turkish Central Bank was tightening rates instead, hoping to stem the Lira’s weakness. The Banks efforts have been thus far unsuccessful; but then so too have Mr. Erdogan’s.