Commodities | Jun 06 2006
By Rudi Filapek-Vandyck
US trading guru Dennis Gartman feels vindicated. He has been warning for several months now that US economic growth has the potential to surprise on the downside, with lagging economic indicators pointing at a possible recession in the third or fourth quarter of 2006. Friday’s economic data (non-farm payrolls) have certainly enforced the vision.
Even if economic growth in the US would not sink as deep as a technical recession, it would seem justified to acknowledge growth is decelerating, and very much so, Gartman comments in yesterday’s update to subscribers to his daily newsletter.
Gartman, a bull on the US dollar until earlier this year, is currently short on the US dollar. His intention (and advice) is to add to the position "sooner rather than later".
This is good news for gold, a fact again emphasised by Gartman in yesterday’s newsletter. Gartman believes the recent correction in the gold price was "a textbook one" and technical charts now indicate investors should best get on board, quickly, for the metal seems prone to continue its upward path.
Several factors in the market support the view, Gartman believes. There is the fact the Russian central banks seems to be aiming at increasing the relative portion of gold in its reserves, strengthened by media reports Russian President Vladimir Putin has ordered the Russian central bank to raise the gold share of foreign reserves from 5% to 10%."
And the Chinese are likely to do the same, with Gartman referring to recent comments made by Yu Yongding, a member of the monetary policy committee of the Peoples Bank of China. Yu said recently China has no choice but to "use some of [our] reserves to buy other assets such as gold and strategic resources such as oil."
Gartman points out China has approximately $875bn in reserves, predominately in US dollar denominated assets "and those reserves are growing every day".
Gartman also agrees with the view that gold is currently too cheaply priced relative to the high oil price.