GOLD ANALYSIS

Just because its not safe doesn't mean gold's not going up - Gartman

Dennis Gartman believes that while it is a speculative play, the yellow metal is going to continue on its route from the bottom left to the upper right hand side of the graph.

Author: Geoff Candy
Posted: Wednesday , 06 Jun 2012

GRONINGEN (Mineweb) - 

With all the uncertainty engendered by the crisis in Europe, the slowdown in Asia and the poor performance of the US, much has been made lately of gold's place in the world order.

There are some that see gold as the currency of last resort, a mirror to the sickening fiat currencies that are racing each other to the bottom. Others, like Dennis Gartman, author of The Gartman Letter have a different view.

"Safe harbours are where the money that you put into it is precisely, within a percent or two, the money that you get out of it. Safe harbours are safe. Gold is anything but safe. Safe harbours don't do what gold did last Friday when it rallied 2.5%. - that is clearly a speculative harbour, he told Mineweb's Gold Weekly podcast.

But, while he does not believe that " all fiat currencies are going down the drain in one effective flush" Gartman does believe that, at the moment, there is a strong investment case for the yellow metal.

"The trend for gold is still from the lower left to the upper right. I think that you want to own gold in dollar terms, I think you want to own gold in euro terms, I think you need to own gold in yen terms and quite honestly at this point, given the economic circumstances, I think you'd like to be long of gold and short the stock market."

This view, he says, is consistent with a consistent philosophy, a consistent economic outlook, at least for the next several months.

For Gartman, much of this view has to do with the "clear recessionary, and perhaps in some terms depressionary circumstances that prevail in Europe".

He says eventually the European Central Bank, despite Germany's protestations, will have to monetise sovereign debt of all the nations in Europe. And, while this is going on, the Federal Reserve will have to continue to err on the side of easy monetary policy all of which is likely to be good for gold.

Gartman adds that the probabilities of growth in the western world are relatively minimal especially because the odds of growth of the kind that the West needs from China

"The chance of the type of double digit rates we need has probably also diminished for the next six months to a year or more before the expansionary policies and the monetary authorities can really begin to take hold."

Under that environment, he says, "most commodity prices are probably not going to do that well.

"If you are long $X of gold short $X of copper over the course of the next six months to a year, you're going to do quite well.