Of Separatists, Refugees & Inflation
September 28, 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.
The EUR and the Yen are starting the week stronger compared to the levels late last week with the EUR having traded to but stopping just barely above 1.1200 with the markets focus this morning upon the news out of Spain and Catalonia where the “separatist” coalition… a very strange amalgam of center-right and far-left-of-center parties… has won a majority of the seats in the Catalan legislature. As the news out of Barcelona settles in and weighs eventually upon the EUR, we note that the situation regarding “refugees” there continues also to weigh upon the currency. Hungary… where an already far-right-of centre party, the Fidesz Party, led by Mr. Vitor Orbans is being pushed even farther to the right by neo-fascist parties up-in-arms about the immigrant/refugee situation… has put up a very real fence with its border with Croatia and it insists that it has no choice but to do so in order to “protect” the EU’s document free travel rules. In a sense, Hungary is right, for Hungary is a member of the so-called Schengen Zone group of nations as are most other EU nations, while Croatia is not.
We continue to look hard upon the comments last week from Mr. Draghi regarding his and the Bank’s intentions to use what monetary tools are available to him and to the Bank to effect an inflation of sorts. He and the Bank, like Dr. Yellen and the FOMC, and like Mr. Kuroda and the Bank of Japan, are intent upon sponsoring an inflation rate of at least 2%. We take him at his word and those seem to us to be of a further expansion of QE in Europe, even as QE has been abandoned for the moment here in the US.
Too, Mr. Kuroda and his associates at the Bank of Japan have no choice but to do the same following the news last week that consumer prices there actually fell in the last month in review. This cannot stand. Mr. Abe has said so, and so too Mr. Kuroda; hence we continue to believe that the Yen too must weaken materially relative to the US dollar, and that only periodic periods of Yen buying stemming from aggressive equity market weakness shall inhibit that trend.
Turning then to the metals markets and obviously to gold specifically we were reasonably impressed that the all-too usual attempt on Friday to break the gold market failed. There was a concerted effort early in the day on Friday to push gold lower following Thursday’s explosive rally, but $1140 support held. That same support this morning, however, is not holding as spot gold has traded to $1135 in what appears to have been yet another futures related “raid” in the market when volumes are low. The “Bugs” will argue that this is once again intervention/manipulation by government gold sellers; we shall argue that it is simply some force of consequential size selling gold and deem it to be nothing more for we do not usually “fall” for the conspiratorialist theories that abound in the internet.
Far more importantly, the support at €1015-1020 held then and has held thus far in Asian and early European dealing in Monday trading. The fact that the Japanese have now suffered another bout of deflation as evidenced last week by the fact that consumer prices fell 0.1% in the last month is reason for the Bank of Japan to ramp up its QE efforts. To this we add the comments by Mr. Draghi of the ECB that he intends to do whatever must be done to effect at 2% inflation rate there means that the Bank’s QE efforts also shall have to be ramped up.