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. ETF.com recently caught up with Gartman to discuss the latest developments in the financial markets.
ETF.com: Last week, gold tumbled pretty hard. Up until then, it was one of the best-performing assets of the year. What do you think happened last week, and are you a buyer at these prices?
Dennis Gartman: I have liked gold solely in euro terms and in yen-denominated terms. The monetary authorities in Europe and in Japan have no choice but to continue to be extraordinarily expansionary. Their economies are weak and getting weaker. Our economy is at least holding up reasonably well. By December, the Fed will probably take the overnight rate up 25 basis points.
Europe can't even consider the notion of tightening in at this point. The political and economic circumstances mandate that the ECB remain as expansionary as it can be. Therefore, gold in terms of the euro can go a good deal higher. I'm very bearish of the euro itself. Once we get under 1.095, the next stop is 1.05, and then we go to par.
Let's say dollar gold holds steady at $1,250 or so, and the euro goes to 1.05. In that instance, gold predicated in euros—and an ETF like the AdvisorShares Gartman Gold/Euro ETF (GEUR)—goes up another 5% or 6% from these levels.
So I'm bullish gold, but only in terms of the euro primarily, and then in terms of the yen secondarily.
ETF.com: Are you neutral on gold in dollar terms?
Gartman: If you made me take a position in dollar gold—if you said, “Dennis, you have no choice, you must take a position, you must either buy it or you must either sell it”—I'd be a buyer, but only if a gun were held to my head and I were forced into taking action.
ETF.com: Another commodity that's been in the news is crude oil, which is back above $50. Prices seem to be getting a boost from recent talk about OPEC cutting production and Russia potentially joining in on those cuts. Is there any truth to that?
Gartman: At the meeting in Algeria last week, some sort of agreement was reached, to at least at freeze or maybe even curtail production. OPEC's been producing about 33 to 33.25 million barrels of crude a day. They say they're going to freeze production at something closer to 32.5 million barrels of crude per day.
If history has taught us anything about OPEC, it's that OPEC cheats. Every one of its members cheat. They cheat when they need to. They cheat when they don't need to. They cheat when it's good for them; they cheat when it's bad for them. They'll cheat again.
What I find interesting is that everybody got excited because Russia said it was going to perhaps sign on with a production freeze. And yet [Tuesday] morning, Mr. Sechin, the president of Rosneft, Russia's largest crude oil producer, asked, "Why should I curtail production? I'm going to continue to increase production."
He is brutally aware that $50 oil plus the $4 contango for one-year forward futures gives you $54. Every fracker in the United States is wonderfully profitable at $50-55 per barrel.
If you can have $55 for the one-year forward in crude, every banker who's lent any money to crude producers here in the United States is going to mandate that they get some hedges in place. Crude oil wells that have been drilled but capped are going to be brought on to production. It's going to be very difficult to push nearby WTI above $50 by more than a buck or two.
The rally in crude oil probably is going to very swiftly run its course.