Dennis Gartman came out today via a Street.com article stating he has been bullish on gold in EUROs and other foreign currencies since October of 2009, not bullish in gold held in U.S. Dollars.
TheStreet: Where do you stand now [on gold]?
Gartman: Well, since basically October of last year I’ve been bullish on the gold market, [but] not in dollar terms. I’ve been bullish of the gold market in euro terms, bullish of gold in sterling terms, bullish of gold in yen terms, bullish of gold in Swiss franc terms. I’m not particularly bullish [on] the gold market in dollar terms and that’s actually been the wise way to go … Gold in dollar terms is … $150 below where it was on its high the first week of December, but in euro terms, Swiss franc, yen terms it’s at new highs … I’ve been that way since October. I’m not changing now.
But is this true? Has Gartman been bullish on gold in EUROs and positive on the U.S. Dollar all this time? The answer is NO.
In “The Gartman Letter L.C.” dated January 22nd, 2010, Dennis Gartman wrote the following about gold:
We, however, are making a material shift in our sentiment toward gold this morning and we shall again mince no words as we make that shift: rather than owning gold in foreign currency terms, we wish to own it in US dollar terms, for we now fear for the dollar rather than cheer for it in the light of this battle between the President and the Banks. Where we once wished to avoid the bearish dollar bet that one is making when one owns gold in US dollar terms, in light of the battle that is shaping up between the President and the capital markets, we shall instead embrace that dollar risk.
So which Dennis Gartman recommendation do you follow, the one where he’s long gold in EUROs and other foreign currencies, or the one where he’s long gold in U.S. Dollars?
Maybe I Can Help Shed Some Light On Investing In Gold…
On November 18th, I wrote an article explaining how the EURO was coming close to its all-time high having reached 1.499. I posed the question to readers, “Does this make sense?”
I proceeded to make the case that “the Eurozone GDP has recorded record drops with only a recent rise in GDP because of government intervention in the auto industry.”
The climb in the EURO was a house of cards waiting to collapse as it was based on government spending programs and a flee from the U.S. dollar.
My conclusion in that November 18th article was;
This last chart shows the U.S. Dollar and Euro prices of gold for the last 30 days. Notice how the red and blue line are in sync? This leads me to believe the EURO blue line on the 5 year chart has some catching up to do with the red U.S. Dollar line and might offer a trader a better investment return in gold in the months ahead if they held their gold priced in EURO’s versus U.S. Dollars.
This is especially confirmed in my mind since the U.S. Dollar Index hasn’t broken down below 72…
In fact, the Dollar index didn’t even break below 74 while the price of gold in U.S. Dollars broke to new highs. I told readers that unless there was a confirmation of the Dollar breaking it’s March 2008 low, they should be cautious. Of course I always make sure to throw in the disclaimer that “holders of physical gold care not that it falls to $700 an ounce or lower on its way to $2,000 an ounce and higher.”
December 11th, 2009 I wrote an article saying Trading Gold In EURO’s Instead of Dollars Now Making Sense.
The EURO had fallen “to 1.4621 and the Dollar Index also had a big spike up to 76.526.”
Two days before the January 22nd, Gartman Letter where he told investors to get out of the EURO gold trade and go long gold in U.S. Dollars, I wrote the following headlines in an article What’s Going On With Gold;
Cash Has Been King for Two Months
Just having money in cash has earned an investor 5% appreciation (plus interest) since the dollar index low of 74 just a couple months ago. The Dollar index as of this writing is sitting at 78.41.
The Gold EURO Trade Looking Great
That said, buying gold in EUROs is now looking like a good trade. There was no reason for the EURO to be as strong as it has been, testing its all-time highs. It’s down 1.43% vs. the dollar today alone.
It May Very Well Get Worse for the EURO
Please consider Ambrose Evans-Pritchard’s article yesterday; “ECB prepares legal ground for euro rupture as Greek crisis escalates.”
Gartman Not Paying Attention To Details
There was no real reason for Gartman to give up on the EURO gold trade with the evidence of trouble staring him right in the face, along with the GDP issues for the Eurozone I stated earlier.
February 23rd, I wrote the following article: Call to Buy Gold in EUROs Up 7.92% Last 60 Days.
While the Dollar Index has climbed to over 80, the EURO is breaking down from the 1.49 price of November 18, 2009 price of 1.49, currently trading around 1.36.
What’s Gartman saying about the EURO now?
Yesterday, Gartman told TheStreet.com The Euro Is Doomed.
I think that Greece is just the first problem and anybody who thinks that the Greek problem has been resolved is fooling him or herself. This problem is only going to get worse and the monetary authorities … are all aware of the fact that they have real problems. Greece may eventually default. I’m sure it will. And even if they bail Greece out, they have to bail every other fiscally irresponsible country in the rest of the European Union. I think the European Union itself is coming apart. I think it’s only a matter of time until it does.
As you can see, Gartman has been doing some flip flopping. He’s in and he’s out. It’s hard to take this advice seriously, but Gartman is the darling of CNBC. I remember him saying this about gold though last year; “Gold….you can’t eat it.”
I truly believe that Gartman doesn’t understand gold. His flightiness with his recommendations shows he’s just trying to attach his trade to the latest news without really understanding the big picture. In his quest to be right on his call, he is too easily moved off the call. This is what he did in January when the Obama administration was spouting some rhetoric about the markets. He jumped to conclusions too quickly IMO.
The Euro Is Doomed, But So Is the U.S. Dollar
But I do agree with Gartman on one aspect. The Euro is doomed. But so is the U.S. Dollar. That is, as long as the governments of these nations keep adding debt to debt, bailing out failed institutions and providing entitlements to their citizens. Governments won’t change their colors. They love to spend. They can’t see the future, only the present. This is why you need to be in gold.
My Take On Gold and the U.S. Dollar
My take is still the same. Europe GDP is no different than that of the U.S. It’s government spending that is keeping things going as their leaders rush to keep the never ending debt game going rather than allow market forces to flow freely and bottom out so a real recovery can occur.
The PIGS (Portugal, Ireland, Greece, Spain) are a real problem, especially Spain. Heck, the ETF for Ireland recently closed up shop. Things aren’t going well in Europe.
To that end, March 1st, 2010; Another Record For Euro-Denominated Gold
Yes, the trade is still on…
But like Europe, things aren’t going well in the U.S. either. States like California are struggling to keep afloat. Like the PIGS of Europe, we have our own PIGS here, and like those European countries, the states can’t print their own money to get out of the mess.
The longer government keeps up the charade of spending money they don’t have, the longer you need to be in gold. For now, the game is being played out quicker via the EURO gold trade, but the U.S. gold trade will at some point resume it’s lead.
The EURO rebounded some the last couple of weeks and this week it’s getting hammered, trapping all those who thought the EURO decline was crowded. In fact, our buddy Dennis Gartman was on CNBC just last week saying he would be cautious with the EURO trade (short) and the EURO has done nothing but fall since then.
Remember, Gartman readily admits he’s wrong 80% of the time. I heard him say this at an investment conference in Chicago that I attended. For this advice Gartman gets paid $5,000 a year for his investment Letter.
Disclaimer: For those that don’t know, I have written a White Paper on Gold you can download and read by clicking on the box in the upper right hand corner of the home page or going here: http://fedupbook.com/whitepaper. I don’t collect email addresses, so just click and read…it’s free!
I’ve also written a book on gold and one on silver. You can read both by going here: http://safelybuygold.com/gc.html
Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with capital you can’t afford to lose. This is neither a solicitation nor an offer to Purchase/Sell futures or options. No representation is being made that any account will or is likely to achieve gains or losses similar to those discussed in this outlook. The past track record of any trading system or methodology is not necessarily indicative of future results.
All trades, patterns, charts, systems, etc. discussed in this outlook and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author.