Master Trader’s Clever Gold Strategy

Posted by Dennis Gartman - The Gartman Letter

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Regarding the precious metals, we are, at the moment, short of gold while long of the grains and despite the movement against us yesterday, we are strangely comfortable with this position.  We wish to note that we are not bearish of gold, and we are not advocating net short positions there for that would be foolish. We are, however, convinced that gold is expensive relative to grain, or that grain is cheap relative to gold [Ed. Note: the GLD/DBA Ratio moved higher and against us yesterday, moving from about 3.3:1 on Friday to 3.4 yesterday.  Last week, when we first entered the trade the Ratio was 3.7:1].

Further, we are more and more convinced that gold is expensive relative to energy.  Thus, just as we have constructed the grain/gold position using ETFs, we can do the same for energy/gold, or we can use the energy trusts instead if we wish.  For example, noting that nat-gas has fallen relentlessly, and noting that the “trusts” have traded perfectly in tandem with falling nat-gas prices, one might notice that the GLD/crude or GLD/Nat-gas ratios have made what seems to us to be important tops, suggestingstrongly that we consider being long of energy and short of gold. We are not prepared yet to act, but we are putting everyone on notice.

Gold vs Horizons BetaPro DJ-AIGSMAgricultural Grains Bull Plus ETF

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Gold vs Horizons BetaPro S&P/TSX Capped Energy Bull Plus ETF

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Mr. Gartman graduated from the University of Akron, in Akron, Ohio in 1972 and went to graduate school at North Carolina State University, 1972-1974.  He worked as an economist for Cotton, Inc. analyzing cotton supply/demand in the US textile industry.  From there, Mr. Gartman went to NCNB where he traded foreign exchange and money market instruments.

In the late 70’s, Mr. Gartman became the Chief Financial Futures Analyst for A.G. Becker & Company in Chicago, Illinois. Mr. Gartman was an independent member of the Chicago Board of Trade, trading in treasury bond, treasury note and GNMA futures contracts. In the mid 80’s, Mr. Gartman moved to Virginia to run the futures brokerage operation for the Virginia National Bank, and in 1987 began producing The Gartman Letter on a full time basis. He continues to do so today.