What To Expect From European QE and Coordinated Global Rate Cuts
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.
Everyone by now of course knows that the ECB has finally embarked upon its own program of quantitative easing. This was a landmark decision by the ECB and, while long over-due, the decision looks to be open-ended rather than finite as Mr. Draghi made it clear that although he said that the program was likely to remain intact into late ’16, it shall remain intact until such time into the future that inflation is back above 2%. We believe strongly that this “open-ended” nature of the QE program is brilliant… and more importantly it is proper.
There is so much else being said and written about what the ECB has done that we are not certain we can “plow” new ground and so we shall again iterate that we think the Bank has done the right thing and that the end result shall be a continually weak and weakening EUR in the days, weeks and months ahead relative to the US dollar. “Parity” with the US dollar is now effectively assured; the only question is when parity shall be achieved, not if it shall be. With the ECB’s action and with the “Scandi” banks following with their own cuts in interest rates, and with the Bank of Canada moving to do the same earlier, and with the Bank of Japan leading the way toward monetary expansion while the US shall err…eventually… toward tighter, more restrictive monetary policies, it is clear that we think the US dollar shall continue to strengthen moving forward.
Turning to gold we will reiterate as we have time and time again over the previous days, weeks , months… and in the case of gold in Yen denominated terms, years…. that we remain bullish of gold in Yen and EUR terms. Our consistency has served us reasonably well as gold in US dollar terms is strong and as the EUR and the Yen are weak. In the case of the EUR, it is materially weak and so gold/EUR has rushed on to new multi-year highs. We have seen a rather marked decline in the numbers of those scoffing at our proposition that owning gold in EURs and or Yen, and indeed we’ve witnessed a marked increase in those suddenly agreeing to our position.