The Gartman Letter: Gold and the Debt Resolution
The Gartman Letter shares their latest thoughts on the currency market.
Passage by both the House and the Senate of a debt resolution has put pressure upon the US dollar and a bid into the gold market this morning. It appears that gold once again held the $1250 support level that has been discussed ad nauseam by the media, bloggers, tweeters, et al. Quite frankly, up until this morning gold had become boring, especially when compared to the action seen in the equities markets and bond markets as everyone awaited action regarding a resolution from the US government. Bullish consensus figures on gold are now sitting under 40% (the lowest we’ve seen in months), down from somewhere in the 70’s only a year or so ago. A market with an overwhelmingly bullish consensus such as gold enjoyed a year ago tends to demand a high level of attention so it is only natural that some of that attention waned recently.
However, the action in gold this morning has piqued my attention once again and not only in US dollars but also in Japanese yen. Over the course of the past year owners of gold have been much better served holding the commodity in Yen as opposed to US dollars, as gold is down nearly four times as much when owned in US dollars as opposed to being held in Yen! The USD/JPY cross has seen a multi-month consolidation over the course of the last several months. Historically consolidations such as this resolve themselves in the direction that was prevalent before the consolidation began; in this case a much stronger US dollar versus the Yen. As details of the debt resolution are digested and the market turns its collective focus back upon national and global economies, instead of the possibility of a default on its debt by the United States, there isn’t any reason to think the prevailing trend of US dollar strength versus the Yen will change. Therefore, as gold makes its way back on the radar it will be important to watch what happens in Yen terms as well.
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