Weaker US Dollar Not Fueling Gold’s Rally
21 October 2010, 9:24 a.m.
By Daniela Cambone
Of Kitco News
|(Kitco News) -Gold’s rally isn’t just based on a weaker U.S. dollar but is being driven by the fact that every nation in the world is looking to have its currency devalued, said Dennis Gartman, editor of the Gartman Letter.
“I find it amusing that people are telling me gold is going up because the dollar is weak when gold is going up in dollar terms, gold is going up in euro terms, gold is going up in sterling terms and the Japanese would love to see gold go up in Japanese yen terms. Gold is even going up in Chinese renminbi terms, so there is something here besides a knee-jerk response by a weak dollar,” he said.
The real story said Gartman is that people everywhere are devaluing their own currencies. “Whether it is Americans disdaining dollars or Europeans disdaining the euro – it is a rush by nations almost everywhere to devalue their own currency ostensibly to pick up exports trade which historically that doesn’t prove to be very true and if it does prove to be true – it is with a long lag.”
Gartman said he finds the tactic of countries devaluing their currencies to be poor economics and poor politics. “The government here in the US is clearly fostering if not sponsoring a weak dollar again to pick up export trade – it will probably prove to be a fallacy.”
A speaker at the upcoming New Orleans Investment Conference, Gartman said that he will be urging gold bugs to have a little caution since gold has become, ”a bit sporty on the upside.”
He said that gold might well be modestly lower next month. “The market has become a bit overbought in the short run and gold needs a correction,” he said.
“A lot of the late buyers need to be taken out and the market will get a good deal healthier I think a year from now,” Gartman told Kitco News. Looking two years down the line, Gartman said gold could be dramatically higher, simply because that has been the trend for the last six years.
“In the last two months we have seen each of the governments of the G7 doing what they can to devalue their own currency. That trend is likely to accelerate but I think a year from now, gold will be at higher prices then it is now,” he said.
Gartman added that he could also imagine a hundred dollar break-in price sometime in the next several weeks.
A Republican Win – Bad for Gold
Gartman does not expect the upcoming U.S. mid-term elections to have much impact on gold, other than to keep people out of the markets on November 2, he said.
“If it has any effect it might be a reason for gold to sell-off because clearly the supposedly more fiscally responsible Republicans, will almost certainly win the House and may well win the Senate,” said Gartman. A Republican win would mean more spending cuts next year, which would be detrimental to gold, Gartman said.