In our regular gold trading alerts, we focus on the short- and medium-term outlook and we rarely discuss the very long-term issues or price targets. The reason is simple – the long-term issues and price targets don’t change often, so usually, there’s little new to say about them. Consequently, it’s been a long time since we last discussed our view on gold’s explosive upside potential. In fact, it’s been so long that those who do not take the time to read our analyses thoroughly and those who have been reading them for only a short while may think that we are bearish on gold in the long run. Or that we’re perma-bears.
This morning brings a reprieve from turmoil; the Turkish Lira has bounced back as much as 8% before settling in. The story will continue to develop and an agreement to release the American pastor will certainly be favorable for the global risk appetite. While the damage to the world’s currency market has been done, we maintain that it is important to not get stuck in the forest so that you can see the trees; there can be a lot of noise in the headlines, especially during slower summer months.
The Turkish Lira resumed its drop early Monday touching a new record low of 7.21 per dollar before recovering slightly during Asia trade. Comments from President Recep Tayyip Erdogan and Finance Minister Berat Albayrak over the weekend that a plan would be revealed today to calm the markets failed to restore confidence.
Crude oil prices are trying to balance the risks to oil supply versus the risks to demand. The risk to the demand side of the equation is coming out of Turkey. Turkish President Recep Tayyip Erdogan is vowing not to be brought to its knees even as it is him that has driven the Turkish economy into freefall. The Turkish central bank says it will provide all the liquidity that the Turkish banks need. That brought the crashing Lira and stock market back a bit, but it is unclear whether that will provide lasting support.
The U.S. dollar appreciated versus most major pairs on Friday. The Japanese yen outperformed the greenback as a safe haven, but all other major currencies suffered heavy losses during the week. Tense trade developments between China and the United States and Friday’s drop in the Turkish lira dragged emerging and developed markets lower as US sanctions were doubled.
The economic situation in Turkey has been a powder keg for months, and it’s finally found a spark. While investors have never truly trusted Turkish President Recep Tayyip Erdogan, he’s shredded his last vestiges of credibility in recent months by appointing his son-in-law as the country’s finance minister and espousing his belief that lower interest rates were needed to fight inflation, the exact opposite of economic orthodoxy (and your humble author would argue, all the empirical evidence of centuries of central banking); indeed, Erdogan recently stated, “interest rates are the mother and father of all evil."
After a significantly busy week, things are understandably going to be quieter next week. After all, we’ve already had three major central bank rate decisions from the likes of the BoJ, BoE and Fed and also some really important economic data, including the U.S. Non-farm payrolls report. But despair not, we will still have two more central bank meetings to look forward to in the first half of the week and some rather important economic data at the end of the week, too.
The U.S. dollar fell on Friday after the U.S. Non-farm payrolls (NFP) came in below expectations with only a gain of 157,000, but otherwise the unemployment rate dropped to 3.9% and wage growth remained unchanged at 0.3%.