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Posted by on Jul 25, 2016 in Market Insight

The G-20 Photo Op

The G-20 Photo Op

July 25, 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$ is again rather quietly stronger, rising a bit relative to the Yen and rising a bit more relative to the EUR compared to the levels on Friday. Further, the technically and psychologically important 1.1000 support level for the EUR has been “given” and indeed the 1.0970 level was “given” late on Friday and they remain “given” this morning as we write, mandating that we added to our current short position. We stand by that recommendation for things are indeed coming apart in Europe these days in the post-British Referendum period and as referenda on separation from the EU by other important countries are now being openly and consistently talked about.

The G-20 meeting in Chengdu, China has ended and it has ended as all such meetings end: with photo sessions; with assurances by the attendees that they love one another and will in the future do what they can to aid the global economy collectively but little else.

The British Referendum was one of the focal points of course and the newly appointed British Finance Minister, Mr. Philip Hammond, went out of his way to assure the attendees that their concerns about some sort of chaotic British circumstance were not going to happen and that all such anxieties would soon abate. Mr. Hammond said

What will start to reduce uncertainty is when we are able to set out more clearly the kind of arrangement we envisage going forward with the European Union. If our European Union partners respond to such a vision positively… [and] obviously it will be subject to negotiation… so that there is a sense perhaps later this year that we are all on the same page of terms of where we expect to be going, I think that will send a reassuring signal to the business community and to the markets.

Mr. Hammond was responding to the official post meeting communique that said that concern over the decision by the British voters to leave the European Union was a reason for the “weaker-than-desirable” global economic circumstances. The attendees all pledged that they shall “use all policy tools” available to them, including monetary, fiscal and structural policies to “individually and collectively” strengthen the global economy. However, no one has ever come away from one of these meetings believing otherwise.

Japan’s representatives to the meeting brought up one other concern: the rising tide of trade protectionism that they see and fear developing around the world. They are of course concerned about the possibility of Mr. Trump becoming the next US President for he is indeed the leading voice for trade protection at the moment. To this end, the Japanese were able to get the following statement included in the post-meeting communique:

We also recognize that subsidies and other types of support from governments or government-sponsored institutions can cause market distortions and contribute to global excess capacity and therefore require attention… [further we support] the role of open trade policies and a strong and secure global trading systems in promoting inclusive global economic growth….

We have been watching and commenting upon these sorts of meetings for more than thirty-five years, and with the exception perhaps of the meeting that gave us the Plaza Accord in 1985 we’ve never really seen anything concrete come of them. Nonetheless, we do not deny their importance, for these meetings give the monetary and fiscal authorities of the industrialized world a chance to meet one another; to speak and to keep open the lines of communication. Hence, although they are expensive events they are useful and are to be continued. But do we ever expect anything material to evolve from one of these meetings? No… Never… and we were not disappointed this time.

There is little “inflation” related news that shall drive gold prices higher, and there is little in the way of international, geopolitical news that shall do so either. Further, with stock prices around the world holding steady or indeed moving higher there is nothing from that part of the capital markets to put a strong bid into gold. Thus, gold is languishing, holding just barely above last week’s lows and holding its upward sloping trend line in US dollar… hourly… terms going back into late May.


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