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Gartman & Amundi: Currencies Too Volatile; Buy Gold Instead
Aspire, Investments | 02 October 2015
By: Lim Si Jie
Articles (169) Profile

Gold has been in a phenomenal bear market since November 2011. Against the US Dollar, Gold has fallen 12 percent from its late January high and is now on track for its worst quarterly losing streak since 1997.

Gartman: Tides Have Turned

Source: TradingView

However, last Thursday, gold prices rose to a one-month high as fears of a global slowdown prompts investors to seek safe haven assets like bonds and bullion. According to Dennis Gartman, often referred to as the “commodities king”, the rally in gold could just be starting.

While everyone focuses on gold’s move relative to the dollar, Gartman believes that the fundamental focus should be on what’s happening around the world.

Referencing to gold priced in euros and yen specifically, Gartman notes that the bullion has actually been outperforming. In euro terms, gold is up 4.6 percent in the past two years and 6.7 percent over the past five years.

Whereas related to the yen, it’s up 4.8 percent for two years and 26.4 percent in five years. According to Gartman, “There’s a real strength in the gold market and when you look at it in non-U.S. dollar terms, the difference is enormous.”

Amundi: Dollar Overvalued

“The dollar is overvalued and is unlikely to see any gain in strength unless the Federal Reserve raises interest rates more than once”, according to Amundi Asset Management, which oversees about $1 trillion. Amundi notes that market participants has already factored in the prospect of the Fed’s first rate increase in almost a decade.

Based on the Organization for Economic Cooperation and Development’s purchasing-power parity gauge, the dollar is about 14 percent overvalued versus the euro and 12 percent against the yen.

Investors’ Takeaway: Buy Gold In Weakening Currencies

For Gartman, owning gold relative to foreign currencies should be a no-brainer. He highlighted that the monetary authorities in Europe and Japan have been more overly-cautious than the Fed and will continue to be in the future.

Gartman also believes gold could benefit from the Federal Reserve’s further retreats from raising rates. In addition, hedge funds and other large speculators have been reducing bets that the dollar will strengthen against eight major currencies, according to data from the Commodity Futures Trading Commission.

Net dollar longs fell to 256,044 contracts in the last week of September 2015, the least since May. The reduction in bets against the dollar rise could see gold strengthening against the dollar as the dollar loses steam.

Amundi believes that the dollar remains undervalued against many Asian counterparts, The Chinese yuan devaluation has exposed the over-valuation problem of many Asian currencies.

The currencies of Malaysia, Indonesia and Taiwan were among the worst performers against the dollar since China’s shock devaluation of the yuan in August triggered a global market rout. Overvaluation of Asian currencies could see Asian investors flock to the bullion as they seek protection.

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

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