While 2013 saw declines of 28% in gold, this year is looking a lot different. The yellow metal is up over 7% since the first of the year.
According to Dennis Gartman, editor and publisher of The Gartman Letter, gold's gains will continue. Though he was bearish on bullion last year, he's now changed his view.
"In the past week or so, it's been necessary to turn bullish of the gold market," says Gartman who notes that the metal has broken above key resistances not only when priced in US dollars, but also against the euro, the yen, British pound, and Australian dollar. "We're seeing some important breakouts in the currency gold relative to all other currencies and I think that's important."
Gartman sees the continuation of the Federal Reserve Bank's monetary stimulus, global currency deflation, and the bottoming of commodity prices all as potential reasons for gold's reversal. But, he also adds that demand from China is adding to the rally.
"The Chinese are back buying gold in a rather aggressive fashion," says Gartman. "China's demand for gold last year was up 41% from the previous year. Those are impressive numbers."
As well, Gartman sees the rally in oil prices continuing. The US benchmark West Texas Intermediate (WTI) Crude contract is trading around the $100 level.
Gartman notes that the term structure of WTI contracts is backwardated. That means contracts for delivery on the near months are trading higher than contracts for delivery at a later date. For example, contracts for crude delivery next month trade at around $100. Yet one can purchase a contract now to deliver a barrel of oil in December 2018 for just $78.
Markets are backwardated for a couple of possibilities. One is that the market anticipates prices in the future to fall due to, say, future supply increases. As well, it could also be because the commodity is in high demand for immediate use.
"It's the oldest rule in the book for commodity traders," says Gartman. "You don't sell a backwardated market. It tells you that demand is strong. Here in the States, given the enormous increase in production, all things being otherwise equal, you would expect to put crude oil prices down. They ain't going down and the market remains backwardated. Markets that won't go down on bearish news probably are going up."
To see the full interview with Dennis Gartman on what's next for gold and oil, watch the video above.
More from Talking Numbers:
- Basic Materials Industry
- Commodity Markets
- oil prices
- gold market