Euro & the Carry Trade


QUESTION: Mr. Armstrong, the rally in the euro and the failure to see a similar move in gold certainly makes this appear to be just a short cover rally. Correct?

ANSWER: Yes. This illustrates just how big the short euro position was on the carry trade. The underlying “fundamentals” did not change, in fact they got worse. The ECB cut deposit rates so the real institutions with cash have been parking in their US branches and posting it at the Fed, This is the carry trade and we exceeded $2.5 trillion in excess reserves at the Fed. So the fundamentals on the carry trade made it even more profitable. Yet that does not matter. This is a typical short-cover panic and correct, gold has not rallied showing that this is by no means the end of a trend for the dollar.

This is illustrating just how serious this entire mess has become with Quantitative Easing. This is out of control and today’s price action confirms it. Welcome to the new reality.