Gold is still a winner – against the Japanese yen, says Dennis Gartman.
This year has been a very bad year for gold against the US dollar. Starting in October of last year, the metal has been working its way downwards. This past month alone, it’s been slapped down 13.5%. If things continue as is, bullion will be down for the first time since 2000.
Price gold in other currencies, however, and the metal looks shinier. And that’s the way you should look at it, says Dennis Gartman, editor and publisher of the eponymous Gartman Letter.
“I think you should speak about gold in terms of being nothing more than another currency,” says Gartman on the premiere episode of “Talking Numbers”.
Particularly, Gartman likes how gold looks when priced against the Japanese yen. “If you have been short gold and long an equal dollar amount of yen, it’s been a wonderful trade,” says Gartman.
Though Gartman believes both will go down against the dollar, he sees the yen depreciating much more than gold.
“The yen can get demonstrably weaker. I think you’re going to see dollar-yen trading well past 125 yen to the dollar over the next year or two,” says Gartman. Gold, meanwhile, will also fall, but not as much. “It wouldn’t surprise me if we saw $1,300 over the course of the next year or two,” he predicts.
With inflation not being too much of a problem despite an increase in the amount of reserves central banks have added to the system, the use for gold as an inflation hedge diminishes. “I honestly can make the case that gold can be down another $150 to $200 an ounce. At the same time the yen can be down another 25% to 30% easily,” says Gartman.
“Buying gold in yen is one thing, buying gold in dollars has been horrifying,” says Gartman.
Do the charts back up Gartman’s claim for gold’s future decline against the US dollar?
“The charts are even more overtly bearish,” says Richard Ross, global technical strategist at Auerbach Grayson. “I can see a scenario where we can see $1,150 – even $1,000 gold. “
“We’ve been in a downtrend since last fall,” says Ross. “The floodgates really opened back in April.”
After gold dropped over 200 points to a low of $1,335.10 per ounce last month, a retracement of 61.8% of the drop back to $1,480 was a technically significant resistance level that held throughout April and May.
For the past few weeks, gold was trading in a range between $1440 and $1480. With gold breaking below the bottom end of that range, Ross sees the things worsening for the yellow metal in dollar terms. “The absence of support down below could set up for a retest of $1320 in the very short term,” he predicts.
Gold’s drop despite central bank stimulus is one reason for Enis Taner, Global Macro Editor at RiskReversal.com and Talking Numbers contributor, to be bearish, he says. “If you have a fundamental backdrop that should support a commodity and it still goes down, then it’s probably going down no matter what.”
Another reason Taner is bearish gold is China’s economic slowdown. “I think that trend is likely to continue which is going to hurt gold demand going forward.”
Still, not everyone is betting on gold going down. Ross notes that the hedge fund Paulson & Co. is notably long gold. “It’s not as if everyone is bearish on gold. It’s just that the recent price action might reinforce that sense.”