Lesser For Longer
December 12, 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.
The EUR… and especially the Yen… continues to weaken with the world looking to the FOMC meeting this week which shall almost certainly end with the Fed moving to raise the overnight fed funds rate by 25 bps and with the post-meeting communique likely to more strongly suggest that further such rate increases are on the horizon… not the immediate horizon perhaps, but the horizon nonetheless.
At the same time, as everyone should of course know by now, the ECB has chosen to reduce its supplies of reserves to the system modestly but has decided also to continue to supply those “lesser” sums for a longer while: “Lesser for Longer” then is the new ECB modus operandi. Further, the Bank said that if there is any meager weakening of the European economy in the coming weeks and months the full EUR compliment of bond purchases will be effected. Hence the Fed is tightening while the ECB is erring either at “worst” to hold its QE experiment steady and may in fact move to expand that experiment if need be. To quote from the ECB’s post-meeting communique from last week “If, in the meantime, the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration”. For once, a central bank has been uncommonly clear.
Regarding the EUR, again there has been support at or near 1.0500-1.0525, with the lows last week and in mid-November at 1.0505 having held yet again. This support eventually shall give way to the downside and it is but a matter of time before it does. It may take untoward news from Italy perhaps, or strange political news out of France, or even some unforeseen bit of ill economic data out of Germany itself to “give” the EUR at 1.0495, but that shall eventually happen and if it is not today, or if it is not this week, or if it is not in what remains of this year, it will happen. It is a matter of time and we’ve time on our side.
As for the precious metals, there is nothing but “red” on the board and our only saving grace is that one has materially outperformed gold in US dollar terms by owning gold in EUR and/or Yen denominated terms over the course of the past several months. However, outperforming because one is losing less is a truly horrible way to “out-perform.” One cannot “eat” on lesser negative out-performance. Since early October, gold in US dollar terms has fallen 6.2% and the Yen has fallen 13.2% while gold has fallen 12.8%. Thus, gold/EUR has fallen 6.6% and gold/Yen has actually risen 0.4%.