Best Of 2011: Dennis Gartman Says Gold To Replace Euro

December 27, 2011


HAI: But do you think that they remain as relevant? Most new sources of oil aren’t inside OPEC: The Campos Basin in Brazil, for instance, or sort of alternative sources of oil like the shale and tar sands. Does OPEC continue to matter as much as it has historically? Or will it sort of be in a continual decline?

Gartman: OPEC is obviously less valid than it was previously. But I don't think it is invalid. I think their power is obviously somewhat limited compared to what it was. But do they still have an effect upon the global world market? Of course they do. Do I think they're going away any time soon? No, I really don't. I think Europe will go away faster than will OPEC.

HAI: One more thing before I let you go. Last year you famously said, quite self-deprecatingly, that corn was kind of your worst call of the year. You went long right before a surprise nobody saw coming in the corn inventory reports. Now we're looking at corn that's near record highs. Is it too late for investors to be paying attention to agriculture?

Gartman: No, it's not too late for anybody to be paying attention to agriculture but it might be too late to be long corn. But it's not too late to be paying attention to agriculture. I mean, agriculture, what's more important than food? I'm going with nothing is more important than food. So people need to pay attention to agriculture.

But here you have corn now trading at 50 cents over wheat. That's inexplicable. And as Lord Keynes said, the market can remain irrational far longer than you or I can remain solvent. Corn prices 50 cents per bushel over wheat is irrationality. And it won't last for very long. But it's the harsh fundamentals of the moment.

We've not been able to get the corn crop adequately in the ground, and that's going to be a real problem for corn this year. The problem for corn next year will be that livestock producers are absolutely dumping livestock on the market because nobody can feed hogs, chickens and cattle at $7.50 for corn. You just can't do it.

So they've been dumping underweight hogs, underweight cattle, just so they don't have to feed them high-priced corn. That's putting downward pressure upon livestock prices. But what it also means is you're removing all of next year's livestock from the market. Next year we're going to be so short of livestock it's going to be frightening.

HAI: Right, and presumably that gives you a negative-demand effect for corn—you'd expect it to come down.

Gartman: That is correct. The feed usage of corn, I think, will be demonstrably smaller next year and into 2013 than it is this year.

HAI: You talk about the prices sort of being irrational. You commented, I think once in your letter on gold, you talked about there being sort of too many people involved in gold. Do you feel like the commodities markets overall have kind of changed with the retailization of futures through ETFs?

Gartman: Well, I think that there's probably too many participants because of long-only funds, who don't trade commodities the way commodity pros normally do. Commodity pros are willing to be short as well as willing to be long, whereas the long ETFs are by definition long; they don't ever get short. And so they end up piling in, and then all of a sudden the door slams and their models all turn and they dump prices for weeks on end.

So that's a problem. And I think it tends to move prices egregiously too high. And at the same time it then moves them egregiously too low. So perhaps there's some concern there. But nothing really changes. We're human beings; we don't change.

HAI: Fair enough. Dennis, this has been really insightful. Thanks very much for taking the time.

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