Dennis Gartman who is a respected short term investor indicated that gold (GLD) appeared to be on the verge of a significant fall in US terms. Part of his interview with Melissa Lee is excerpted below. Dennis Gartman has been correct enough times to deserve listening to his comments in this instance.
My observations indicate that commodities have been “financialized” more in the past 10yrs than we have seen in the past 100yrs. This means that many investors especially Hedge Funds have used futures to offset anticipated inflationary pressures in portfolios expected as the result of the Federal Reserve’s “Printing Money!” Gold has always been seen as a safe haven from inflation with oil, tin, copper, nickel and other commodities playing a role this time around. Even coffee rose 3x at its peak without any true shortage. Meanwhile, the actual inflation rates having risen to ~2% have been falling even with additional Federal Reserve financial stimulation, i.e. “Printing Money!”. The latest inflation readings from the Dallas Fed are ~1.5% with the next 6-12mos appearing to be in a down-trend. Historically, inflation has always required government and individuals spending without care to value received. We do not have this situation today!
At some point those investors owning commodity futures positions as a hedge against anticipated inflation pressures will have to take notice of current trends. Inflation is currently in a down-trend. Falling inflation favors owning common stock over commodities. The history of forecasting when market psychology will shift from one theme to another has provided many a pitfall for well-known investors and advisors. My historical studies lead me to expect a shift towards common stock, but I also know that predicting when, where and how much has ruined the reputations of those who attempted specific forecasts.
Dennis Gartman has been better at calling short term market psychology shifts than most in my opinion. I think his interview with Melissa Lee yesterday is worth your time. Meanwhile, I have recommended positioning portfolios towards LgCap and Intl LgCap as they appeared to carry the better Returns vs. Risks for the next few years. My recommendation to exit Real Estate (REITs) is within the theme that too many investors have favored hard assets for inflation protection and in the process have driven their longer term returns to historic low levels. One expects a change at some point, but identifying a future date has always proven impossible. The better approach in my opinion is to be positioned early for the change and then listen to the better short-term market prognosticators like Dennis.
I think Dennis Gartman may have it right:
“Mel, I think gold is in very serious trouble right here. in Dollar terms. I’m still bullish of gold in Yen terms. you heard the story before. I been that way, I’m going to continue to be that way. but gold in Dollars has broken decisively. I’m not sure if it’s the currency war that everybody’s talking about, or simply technical circumstances. But, nonetheless, any trend line you wanted to draw on the gold chart has broken down. A lot of people still long. I think it has a long way to go. The fact that it didn’t bounce even slightly today after it broke 19 or $20, all it went was sideways, tells me it’s going to go down again. Take a look at what’s happened in the last hour in Dol/Yen. Dollar/Yen has gotten very strong. The Dollar’s gotten very strong. The yen’s gotten very weak. It’s moved almost a full yen in the last hour. I haven’t seen that happen in a very long time. That’s in addition to what was going on today. So, something’s happening in the Yen, in the Dollar/Yen move. Something’s happening in gold. You do not want to own gold in Dollar terms under any circumstances.”
If gold falls, so will oil, nickel, tin, copper and all the rest in my opinion. I note that Starbucks Corporation (NASDAQ:SBUX) has recently lowered bagged whole coffee bean prices by ~15% in response to recent declines coffee bean prices. Coffee beans were one of the last commodities to rise sharply in recent years. Now, we are seeing the reverse. The rise in coffee prices was never due to a shortage of supply! It will be interesting to see if Dennis Gartman has called this turn.
Optimism remains warranted in my opinion for LgCap Domestic & Intl