Dennis Gartman is the man behind The Gartman Letter, a daily newsletter discussing global capital markets. For over 20 years, The Gartman Letter has tackled the political, economic and social trends shaping the world’s markets, and Gartman himself is a frequent guest on CNBC, Bloomberg and other financial media outlets.
Recently, we sat down with Gartman to discuss his recent call to go long-gold in nondollar terms, the changing role of OPEC and whether anything’s more important than agriculture.
Hard Assets Investor (HAI): Let’s get right to the meat of it. You recently said that you were bullish on gold, but not in dollar terms; rather, euros, pounds, yen, etc. How would you actually put that trade on, since gold is generally traded in dollars?
Dennis Gartman (Gartman): Well, it’s not as difficult as it sounds. If you buy gold, by definition you have gone short of the U.S. dollar. If you buy a gold future or if you buy a gold ETF, that’s essentially the trade you made. You’ve bought gold, you’ve gone short the dollar.
Let’s say one did $100,000 worth of the gold ETF, GLD; how do you turn that into gold in euro terms? Well, you short the euro ETF, which should be easily shortable, but sometimes it’s hard to borrow. If you bought $100,000 worth of the gold ETF, you would sell $100,000 worth of the euro ETF. And essentially what you have done is construct gold in euro terms.
If you bought $75,000 worth of the gold ETF and sold $25,000 worth of the yen ETF, sold $25,000 worth of the euro ETF, sold $25,000 worth of sterling, then you’ve effectively created gold in all of those other currencies. You’ve created a gold position not in U.S. dollars.
It’s a much better trade. Gold has become a currency and it’s become the reservable asset, in competition primarily with the euro, which is now the second-most-liquid reservable asset. And given the problems that are extant in Europe at this time with Greece and Portugal, Spain, Italy, etc., I just think it’s the better trade. The more consistent trade and the less volatile trade is to be long-gold in non-U.S. dollar terms.
So you can do it most easily in the ETFs or you can do it very readily in the futures markets, which most people don’t like to trade in.
HAI: What’s the thesis for not wanting to be short the dollar? What’s wrong with being short the dollar right now?
Gartman: Well, I think it’s a bad trade. I think that the euro is now topped out dramatically. I think the problems in Europe are so severe that we’re going to wake up one day and find that the euro is no longer traded; whether that’s next week or next month or next year, I don’t know. But the problems in Europe are much worse than all the problems here in the United States, fiscally. Except for Germany.