Dennis Gartman, who correctly forecast 2008’s commodities slump identifies a few reasons for pause in his latest daily trading commentary that he has written for the past 30 years. Dennis is concerned about consensus numbers that “now have 90-95% of those polled bullish of gold”. The author of 22 Rules of Trading posits that anytime consensus numbers get into the stratospheric levels they are now it would be a good idea to “ramp down rather than to ramp up bullish enthusiasm”.
Gartman sold his trading position today “culling that which we bought last week and upon which we have a tidy… indeed a rather large and all-to-swift… profit”. Despite selling the trading position, Gartman is not selling his core position in gold. He retains his core position in gold and remains long term bullish.
Another reason Gartman is cautious is that very recently the gold ETF GLD suddenly became bigger than the largest known stock market ETF SPY. To Gartman this is “nonsense; this should not happen but it has, and in our mind’s ear we hear Ben Stein’s father, the noted economist, Herb Stein, saying “That which cannot continue, won’t.” In these days when gold can move $40 -$50 in an instant up or down, when the focus on gold is so passionate, sentiment so extreme Gartman thinks gold is “not an investment that is safe, indeed it is far from safe; it is violent; it is mass psychology incarnate and it is scary”.
Bottom Line, Dennis Gartman remains long term bullish gold, but he is getting nervous and draws his readers attention to where this will all end:
“Such things senseless happen after periods of euphoric rises in prices of some markets. We remember when the land in Japan’s Imperial Palace was said to be worth more than all of California. That could not continue; it didn’t. We remember when the Nifty Fifty’s valuation was more than that of the rest of the NYSE; that could not continue. It didn’t. We remember when Petsmart’s capitalization during the dot-com frenzy was greater than that of General Motors. That could not continue; it didn’t. A tulip bulb once sold for more than the value of a fine house in Antwerp; that could not continue and it didn’t… but not before bankrupting hundreds of seemingly wise investors/traders/speculators at the time. Thus, GLD’s capitalization being greater than that of SPY cannot continue. It won’t. Oh and for good measure, to make certain that gold’s price must decline, the Shanghai Futures Exchange raised its margins today. Wave goodbye to GLD’s premium over SPY in the process:
Mr. Gartman has been publishing his daily commentary, The Gartman Letter, since 1987. Over the years, he has also conducted numerous presentations and courses on issues relating to the capital markets and derivatives for various brokerage firms, central banks, and U.S. government entities. In recent years, Mr. Gartman has been a frequent guest on leading financial television and radio networks.