The Legendary Gartman on Gold & Gold Silver Ratio

Posted by Dennis Gartman - Michael Campbell Comment

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From Michael Campbell: The World Outlook Conference this year is using technology to bring us Peter Schiff, Jim Dines,  and Dennis Gartman. Today the Great Trader Dennis Gartman provides this excerpt from his highly regarded Gartman Letter,  a daily commentary on the global capital markets, distributed to subscribers by 6:00 am EST (11:00 GMT) each business day. The Letter addresses political, economic, and technical trends from both long-term and short-term perspectives to subscribers that include leading banks, brokerage firms, hedge funds, mutual funds, and energy and grain trading firms from around the world. – Michael Campbell


COMMODITY PRICES ARE WEAKER, and the precious metals are the “lead” dog in this regard, for they’ve plunged in the course of the past twenty four hours and have fallen materially over the course of the past several weeks. We continue to hold a residual, insurance position in gold but we trust we have been clear over the past several weeks that our urge to be long of gold has fallen quite sharply and the trend has turned rather badly against the longs. We’ve been quite clear that we look for… and indeed expect… spot gold in US dollar terms to make its way down toward the $1270-$1290. It is heading there rather swiftly, and that is gold’s wont in such instances.


The public is long of gold, and indeed some of the larger and more public funds are enormously long of gold also. The fact that the “open interest” in GLD… the most important of the gold ETFs … rose late last week told us and tells us still that the public and even these well known funds were buying into gold’s weakness last week. Now those purchases, and those made late last year, are heavily under-water.  The margin clerks are sharpening their pencils, and are preparing to issue liquidation orders to take those “specs” out. When those liquidation orders are given we are likely to see a truly violent downward draft that shall take gold to our target. We may indeed be surprised by the swiftness and the violence of the action.

As should be the case in this sort of liquidation, silver is leading the way lower and the gold/silver ratio is rising sharply as a result.  During the bull market, the Gold/silver ratio fell as it should, moving down from 90:1 (i.e. It took 90 ounces of silver to “buy” one ounce of gold back in October of ’08 when the bull market in the metals actually began in earnest) to 45:1 a short while ago. Interestingly this was the same level to which the ratio had fallen back in the late- autumn/early-winter of ’06 and again in mid-winter of ’08. The public has rushed into silver as the “poor- man’s gold” and has to be shaken from its positions before health can be restored. In the process, can we imagine the Gold/Silver ratio trading back toward 55:1 from the present level just barely below 50:1?  Oh, easily… very, very easily. The silver bulls among us should be wary then that they’ve only just begun to see the margin clerks’ collective wrath [Ed. Note: As an aside, whilst flying back late last evening from Akron, Ohio, via Boston and having been recognized for our appearance on television, we were asked several times by those around us “Can I buy silver here?”  Rarely are we queried in this fashion, but when we are it is always a sign of the public’s interest and exposure. Worse it is even more always a sign of a market that is going to head lower, not higher.


Be Sure to catch DENNIS GARTMAN, BROADCASTING FROM VIRGINA in this years World Outlook Conference.

Mr. Gartman has been in the markets since August of 1974, upon finishing his graduate work from the North Carolina State University. He was an economist for Cotton, Inc. in the early 1970’s analyzing cotton supply/demand in the US textile industry. From there he went to NCNB in Charlotte, N. Carolina where he traded foreign exchange and money market instruments. In 1977, 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 until 1985, trading in treasury bond, treasury note and GNMA futures contracts. In 1985, Mr. Gartman moved to Virginia to run the futures brokerage operation for the Virginia National Bank, and in 1987 Mr. Gartman began producing The Gartman Letter on a full time basis and continues to do so to this day.

Mr. Gartman has lectured on capital market creation to central banks and finance ministries around the world, and has taught classes for the Federal Reserve Bank’s School for Bank Examiners on derivatives since the early 1990’s. Mr. Gartman makes speeches on global economic and political concerns around the world.