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Posted by on Sep 6, 2016 in Market Insight

The Watanabes Strike Back

September 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 US dollar is firm again but is only very, very marginally so relative to the Japanese Yen and is also barely so relative to the EUR, with the relative “strength” of the Yen on the crosses vs. most other currencies a reflection once again of the propensity on the part of Mr. and Mrs. Watanabe to take their money invested abroad back home to Japan during periods of confusion and duress. And we must admit here that the global capital markets are indeed confused and under duress this morning as stock markets fell sharply in Friday and as that weakness continued overnight in Asia. European stock markets are opened sharply lower and the DAX futures, as we write, are already down 1.6%, having “gapped’ lower earlier this morning. Confusion and concern reign and as our old friend, Doug Kass is wont to say, “Risk happens fast.”

Turning to the precious metals perhaps some shall find it odd that with the world’s equity markets under duress that gold is trading weaker, but we begin with the very real notion that the margin clerks look to gold as a primary source of liquidity when conditions turn as they have since Friday. Eventually the margin clerks will cease their gold selling and eventually gold will strengthen as fear takes hold and gold’s historical tendency to strengthen during periods of duress obtains. But that may take a day or two or three. The margin clerks have other more pressing concerns today and it is their tendency to sell gold first and ask questions later that prevails for the moment. Worse, however, is the weakness in the precious/industrial metals such as silver, platinum and palladium, for they are getting the brunt of margin liquidation AND of fundamental selling as there will be… or certainly should be… concerns that auto sales et al shall suffer if the equity markets continue their way down 3 AND if the US monetary authorities do intend to press ahead with tighter policies.

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