by Sumit Roy
Dennis Gartman is the man behind The Gartman Letter, a daily newsletter discussing global capital markets. For more than 20 years, The Gartman Letter has tackled the political, economic and social trends shaping the world's markets, and Gartman himself is a frequent guest on CNBC, Bloomberg and other financial media outlets. HardAssetsInvestor Managing Editor Sumit Roy recently caught up with Gartman to discuss the gold market and the four new gold ETFs he is involved with.
HardAssetsInvestor: I recently read that you turned bullish on gold. What's the reason for that change?
Dennis Gartman: Yes, I've quietly turned bullish on gold for a few reasons. Firstly, beginning five and six weeks ago we started to see a lot of the mining companies- even the largest gold mining companies- begin to curtail production. That's always a sign of an end of a bear market.
When senior management at the largest gold mining firms throw their hands up in dismay and begin curtailing production, usually within weeks the lows are going to be found. Decision by committee is always that way. It's slow; it takes time; and it's always late.
Two, I don't see any major reduction in accommodation that the Fed is pushing into the system. We are far from tightening; we are still aggressively easing, with $65 billion still going into the system between each FOMC meeting. Yes, that's down from $85 billion, but still, those are massive injections of reserves into the system. The Bank of Japan is doing even more than the Fed.
Thirdly, supplies are tight. The fact that gold futures moved to a very modest backwardation indicates how tight deliverable supplies of gold are. And finally, when you go and speak at "gold bug" conferences, the populations are down by 40%. That tells you something. Throw all those things into the pot, stir them around a little bit, and it tells me it's time to be bullish.
Gold prices have gone down, and the market has beaten prices up about as much as they can. Bad news came out several times; you've had gold being downgraded by multiple brokerage firms, and it didn't break.
HAI: Like you said, gold hasn't reacted to bad news. The Fed has actually tapered two times, which you would think would send gold down, but instead it's rallied.
Gartman: It's rallied. I think that's impressive.
HAI: I also read a statistic that China's gold demand was up 41% last year?
Gartman: That's a big number. Whether one believes it or not, let's cut it in half. It's still a big number.
HAI: Right, it's huge.
Gartman: Let's say, well, I might not believe the statistics. OK, cut it in half and it's still a big number. That's impressive. If you look through and see where the gold is coming from, it's coming out of Switzerland; it's coming out of Hong Kong across the border; it's even coming in surreptitiously. So one has to view that as being reasonably positive.
The major thing is that the psychology had gotten so overwhelmingly bearish and so dismayed. Perhaps the most bullish indicator of all is that the attendance at the "gold bug" conferences that occur in January and February are down dramatically.
HAI: Can you tell us about these four new ETFs that you launched in partnership with AdvisorShares?
Gartman: Sure, they're very simple. I look at gold as nothing more than another currency. In the foreign exchange market, people trade sterling against the euro; they trade euro against the yen; they trade yen against the Canadian dollar; they trade the Canadian dollar against the US dollar; they trade the US dollar against the Aussie dollar; they trade the Aussie dollar against the Mexican peso; you trade the peso against the ruble.
Foreign currency traders, foreign currency dealers, and foreign currency investors are always looking at currency crosses. I'm not a "Gold Bug." I just think that gold is nothing more than another currency. It is no better nor any worse than is the dollar, than is the ruble, than is the renminbi, than is the euro, than is the yen.
And as a currency, it can be and should be seen in relative terms against other currencies.
With these ETFs, you can trade gold against yen; gold against euros; gold against pounds; and gold against a basket of different currencies.
HAI: Are these funds, in your view, more suited for traders or for investors?
Gartman: Both. I see them as absolutely useable by both factions.
HAI: How will someone know when to buy each ETF? What fundamentals determine whether it's the right time to buy gold in yen, gold in euros, gold in pounds or the one fund that's a basket of all of them?
Gartman: I have to leave that to the individual to make that decision. But in the case of Japan, if one looks at the fact that the monetary authorities in that country have said without equivocation that they intend to expand the supply of reserves at a pace aggressively faster than the U.S. Fed, one would have to imagine that gold would do better in terms of yen than it will do in terms of the dollar.
And in fact, over the course of the last several years, as gold in dollars is down something like 35% from its high, gold in yen is down only 2%. I think that's interesting.
If you think that the monetary authorities in Europe are going to be tighter, are going to be more hawkish than are the monetary authorities in the United States, you probably would not want to own gold in euros. You probably want to own gold in terms of dollars or in terms of yen. If you think the monetary authorities in Japan are going to expand the supply of reserves of yen faster than the European central bank, or the Fed here, or the Bank of Canada, or the Bank of England, then you would want to own gold in yen-denominated terms.
So it is a currency and central bank-predicated decision.
HAI: How do you respond to critics who say that the ETFs are primarily a currency play with gold tossed in? For example, couldn't someone simply short the yen, pound or euro without the added complication of gold in the mix?
Gartman: Sure they could. I trade currencies all the time. Just because I trade currencies doesn't mean I have to trade gold incumbent with it. Just because I trade gold doesn't mean I have to trade currencies incumbent with it. Just because I trade soybeans doesn't mean I have to trade gold. Just because I trade stocks doesn't mean I have to trade bonds. Just because I trade stocks could mean I can trade bonds. Because I trade energy could mean I trade gold.
Of course you can do it either way. There's nothing to stop you in either direction.
Read Part II of the interview, “Dennis Gartman Says Natural Gas Could Easily Spike To $10 With Producers Unable To Hedge.”