Dennis Gartman carries significant weight in the trading world and many people listen to him. I do not know his track record in stocks, I assume he must be OK, but I do know his track record on gold and it is terrible. When Dennis says to buy or sell gold, do the opposite and you will do very, very well.
Last summer when gold was in the low $900’s Dennis was on Fast Money, a CNBC show, and said he was shorting gold and said it was terribly overpriced. He went on to say the technical’s said it should go to the mid $800’s or lower. He must have lost a bundle on that trade because gold quickly ran higher to the $980 level never to return to the low $900’s again. Ever since then he has been more negative on the metal than positive as it marched higher, until it was in a clear breakout above $1,000 – $1,100 and he bought it in Euros.
I stopped listening to what he had to say a long time ago because he was proven wrong on every call he made and I rarely listen to what the talking heads say on TV anyhow, they are always talking their book. Anyhow, I happen to caught a story on CNBC.com were Gartman said to “run to the exit on gold,” get out before it is too late or you will lose your shirt was the case he was making a week or so ago. Why was he making this call? Because gold was selling off because of a global liquidation and it sank to sub-$1200 and the momo’s were getting out of it, so what. Investors rarely care what is happening right now, they are about what will happen in the future and gold is still a good long-term investment and Gartman knows it because he has changed his mind, again!
This means you should probably sell if you are a trader or prepare to buy if you are an investor because prices are about to get cheaper, if Gartman’s record holds true. According to CNBC.com Gartman said this: “On Monday, Dennis Gartman reversed his call for gold investors to rush to the exits, saying the precious metal was no longer overbought, but also warned that it was a technical call and he is “not a gold bug.” This guy changes his mind more than most people change their socks and is wrong more than most I might add.
I get that people do not know how to value gold that maybe a clue that one should not trade it and rather invest in it instead. Buy some nice pretty coins and stick it in your sock drawer and after Helicopter Ben prints us into the new Zimbabwe you can then cash them in, that is what owning gold is all about, protecting your buying power and wealth. However, the pundits will never get it and one should use their calls as a contrarian indicator of when to buy at better prices since they never seem to get the forecasts right. For the record, I have no real forecast on the price of gold except it goes much higher from here, but I am the type of bug who buys some every month and when there is a big dip I buy more than usual, depending on the reason why. When central banks are talking about printing a trillion here and printing another trillion there it is impossible to believe paper currencies are worth anything at all. Paper currencies need confidence to succeed and what little confidence is left is quickly disappearing which should scare everyone.
That was the question posed to one Dennis Gartman this morning on CNBC, as we already know CNBC hates gold and anyone who invests in gold, Mr. Gartman said gold was indeed a bubble. One has to keep grounded when Mr. Gartman speaks about gold since he has been dead wrong about it at almost every turn. In fact, sometime this summer when gold was trading at $900-920 an ounce Mr. Gartman actually went short gold and stated he would cover his short at $840 or somewhere in that area. Gold went to $1,000 surely burning his short position.
However, when Mr. Gartman said he liked gold at $1,000 I contemplated selling my position only to buy it back lower, but I figured he would be out well before my time horizon so I held my position. What I find interesting is the fact that CNBC, Mr. Gartman and so many others are so quick to point out that gold is a bubble, but stocks are fairly valued. The only reason stocks are up, as Meredith Whitney pointed out today, is because of a “wall of liquidity” which is the exact same reason gold is up to begin with. Gold is the investment one buys when the dollar depreciates or one fears inflation, technically they are both the same thing, and given the dollars slide is it really a surprise that gold is going through the roof?
Even though I find the bubble argument to be ridiculous over the long-term I am willing to concede this, it has definitely gotten ahead of itself and I do expect a pullback. I believe the floor is somewhere around $1,040/oz which is where India bought its 200 metric tons of the yellow metal. I will be more than happy to buy more at lower levels, but I am not going to chase gold at these levels even though I believe it is a good long-term investment. Depending who you listen to gold either has a target of $1,200 up to $5,000 an ounce, but I have no opinion on a final value except I believe it goes higher. Clearly the market believes it will go higher as well, or does it?
As most of you know there are 2 markets for gold the paper market, GLD, and the physical market, COMEX for physical delivery or coins. Both of these markets have extremely high demand right now because of the debasement of the US dollar, which is undeniable. The question that I have is pretty simple, is the GLD powering gold higher? This wraps into the Vampire Squids game of high frequency trading.
Computers and algorithms simple track buy and sell signals from technical analysis or short-term trends. When the GLD broke above $100 it was a technical breakout so did these HFT machines then begin to get more active in this security? I do not have a for sure answer for that, but I am willing to speculate that it did. Since the GLD has to buy gold based on the shares bought, regardless if it is a person or a machine, when it broke out did these machines keep buying and drive up the price. Again, I would have to say that is not out of the realm of possibility and may explain how the price of gold continues to climb.
If this is indeed the case then there is a bad ending to this tale because as soon as the machines are done with the GLD they will dump it or short it. This could cause the price to swing back below where it should be, wherever that might be. Obviously we will not know if this will happen or not until it is over with, but the one thing I am certain of is that as long as the government and the Fed continues down its destructive monetary path gold will continue to make new highs. However, if I am right about the HFT machines being involved then those highs may take longer to materialize, but they come.
The other thing I am sure about is that at the end of the day gold is not in a true bubble like most seem to think. It is a vote against fiat currencies and the monetary policy of the central banks. Let us not also forget that production of gold, and all the easy to mine gold for that matter, has already been mined and many central banks are buyers of the yellow metal. There is also the individual “gold bug,” like me, who buys the stuff which essentially means that demand will be much higher than supply for some time. According to my economics professor, when supply is below demand the price increases, not that many of the talking heads on the TV will ever realize that point, but it is a reality. The only long-term bubble in the gold market is from the ignorance of those who do not wish to understand the basics of supply, demand and their impact on the price of gold.
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