Dennis Gartman gives more advice on gold

Dennis Gartman of The Gartman Letter talked about gold and other precious metals during an interview on Bloomberg earlier today.

Click to play in a new window

While he is without a doubt bullish over the long-term, it's hard to make sense of his short-term outlook given that he claims to have sold half his gold when the price was about $100 lower a couple months ago. Some excerpts:

Host: Do you think that investors should be selling into some of these rally? Pocketing some of their gains?

Gartman: You've had a pretty good run haven't you. I would tell people, don't buy any more up here and if you haven't owned any, please don't buy any up here. I think that would probably be an ill-advised trade. And if you had some and couldn't sleep at night, you might want to go ahead and sell a little up here.

Host: Let's break it down a little bit more. You've got gold hitting another record, what's your outlook for gold at this point? You know the estimates out there.

Gartman: Well, a thousand really is right there, isn't it? It's the siren song, it's the siren singing to Ulysses. Markets have this terrible tendency to go to what I call the "obscene" number, which, in this instance will be a thousand. We'll probably get there. Remember how we got crude oil when we got there a month ago, we got there for just one day. We might put a thousand up there just to do it and then back off from there.

Host: Do you think gold is a safe inestment at this point? It was interesting this morning to see all these gold commercials. Everybody's telling investors to buy gold. How safe is it though?

Gartman: Well, those are the indicators that you're getting a little bit sporty in price, aren't they. I've had more calls asking me to be on TV asking me to talk about the gold market and you don't get those kind of calls when gold is trading lower, you only get those kind of calls when gold is trading higher and the public enthusiasm for gold is quite disconcerting - everybody wants to own it and, even when you walk down the street, people say, "Hey, don't you talk about gold?" It's a little frightening.

I like Dennis Gartman a lot, in large part because he talks about gold and other commodities, but I wouldn't necessarily heed his advice on the yellow metal. Below, reproduced in its entirety, is a post from almost two months ago - Last Week's Gold Commentary - where his comments at that time were discussed.

ooo

Monday, January 14th, 2008

Below are excerpts from last week's commentary in the Precious Metals section at the subscription site. After a long weekend involving some major changes to the model portfolio, little motivation can be found at the moment to write for the blog, however, that will change soon enough.

It looks like we are now a few dollars clear of the $900 level that, just six months ago, would have seemed pretty preposterous - what you see below was written two days ago on Saturday.

There were new all-time highs for gold last week as the heavily traded February futures contract saw prices go as high as $900.10 before ending the week slightly lower. The spot price reached a new inter-day high of $898. The 15-month long price weakness in the yellow metal, after making highs near $725 in the spring of 2006, now seem like an ancient memory as more and more analysts talk about $1,000 gold, at which point the nascent gold fever may really begin to catch on with retail investors.

The usual reasons are being offered for the recent strength in the gold price and, while some are starting to talk about a "gold bubble" and Dennis Gartman announced that he was selling half his gold position, I don't think there is any reason to even think about selling anything unless you are a much better trader than I have ever been. Mr. Gartman's reasoning is that there is likely to be a major correction down toward $800 before prices go appreciably higher and he remains very bullish in the longer-term.

It's hard to argue with that thinking, however, I wouldn't count on a correction.

As mentioned in this section late last year (see Volume II, Issue 49) and as shown in the chart below, there is a precedent for the sort of movement that we are now seeing where a big price move follows another big price move after a period of a few months of consolidation.

This is one of the reasons why I continue to advocate taking initial positions (10 or 20 percent of what you will ultimately buy) at any time and then either averaging in over time or buying on weakness - you don't want to be completely left behind, but at the same time you don't want to be stuck with a losing position for 15 months (as was the case between May of 2006 and August of 2007) because many investors simply can't deal with holding onto a losing position for that period of time, opting instead to exit positions at a loss.

Silver too has posted strong gains in recent weeks, rising 10 percent as compared to just six percent for gold. As discussed previously (see Volume II, Issue 52), in conjunction with the sale of equity positions in the model portfolio this week ...

To read the rest of this commentary and/or to visit the links above, you may sign up for a no obligation, FREE 30-DAY TRIAL.

To learn more about investing in natural resources using commonly traded ETFs, stocks, and mutual funds, see this description at Iacono Research. Or, sign up for a free trial.