Dennis Gartman, Founder and Publisher of The Gartman Letter, gave a very interestinginterview on CNBC where he shared his insights into gold. His take home messages were:
- The high in gold is almost 2 years behind us.
- We’ve failed to make a new high and broken many trend lines support.
- Gold is a broken commodity and is likely to head lower.
- Gold is likely to head lower even with all the news of the Fed expanding reserves to the system.
- The trend seems to be downward, and if $1,200 is broken, the next level of support is $1,000.
CNBC commentator Brian Sullivan provided the best insight of the video when he described gold as an aging athlete, where it still has its fans, but its best days are behind it, and it is unlikely to repeat the glory days. Brian put it best when he says “gold’s had its day.”
The second best insight provided in the video is an observation I’ve made many many many times in other articles. If gold can’t rally on all the good news out there, what will make it rally? Dennis put it best when he said “the oldest rule in commodity trading is that if something can’t rally when the news is bullish, it is a bear market.”
In conclusion, because gold is simply valued upon what someone else is willing to pay for it, the simplest methods of valuation are often the best. Gold doesn’t generate a cash flow, there is simply a supply and demand, and where the two meet is the price. Supply is pretty much fixed in the short run, so demand becomes the determining factor for the price. Demand is shifted by the news and outlook for gold. Currently, even with all the good news that should be bullish for gold, the price continues to deteriorate. In my opinion the aging athlete is an excellent analogy for gold, and the markets seem to be agreeing that it is simply time to retire gold and move on to the next emerging bull market.