HardAssetsInvestor

Written by Drew Voros  |

May 24, 2012

Best Of 2012: Dennis Gartman Says Gold Puts In Short-Term Low, But Not A Safe Haven

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HAI: And when that happens, will it be for the other countries to look at and say, “Is that where we want to go?”

Gartman: Put yourself in the position of the Portuguese prime minster. Say the Greeks are removed, or are forced out of the European Union, and are allowed to take back the drachma. History shows that countries that are forced to devalue within a year are in much better condition. I can’t think of a single incidence where a country that is forced to devalue is in worse shape one year later than they were before. It depends on which industries they have.

But right now what’s your propensity to step up and go to Greece for a holiday? What’s your propensity when the price has been cut in half? Great. Greece has a very large textiles business. If you’re a textile buyer, what’s your propensity right now to buy Greek textiles? Probably nonexistent. What happens six months from now if it’s cut in half? It’s probably been greatly enhanced.

So if you’re the Portuguese prime minister and you see Greece forced out of the European Union, walking away from its debt, and seeing that its unemployment rate begins to decline, and that its trade begins to pick up, you as the Portuguese prime minister are going to be forced to say, “I want the same thing.”

HAI: We’re clearly seeing oil in a downward trend. Is this just the possibility of the Iran problem going away? Or is it just the production is so strong and the demand is not keeping up with it?

Gartman: Yes and yes. I think it’s a lessening of the Iranian problems. I think it’s a clear understanding of how imperative, how huge are the findings of new energy in the U.S., in particular of natural gas. It’s abundantly clear. Look at the numbers. Americans are driving 8 percent less now than they were a year and a half ago? Everybody’s doing that.

And think about this. The average age of the American automobile is something like 10.75 years old. Every car that is now retired is probably an automobile that gets 12 miles to the gallon and will be retired and replaced by a car that gets 30 miles to the gallon. Every single day we are retiring old clunkers and putting high-tech automobiles on the road that are more gas efficient.

So even if we begin to increase the amount of mileage that we drive — and I don’t think we will — we may be increasing the mileage driven with cars that are more mileage efficient.

HAI: Are we going to see a closing of the Brent-WTI price spread within a year? Or is that still pretty far off?

Gartman: No, it’s already in the process of doing it. You have to remember, Brent was $26 premium to WTI about six months ago; now it’s $15. It’s going to go back to discount, which is where it should be.

HAI: And if somebody wanted to play that, is that a simple long WTI/short Brent in some capacity?

Gartman: That’s the way to do it. But the market is already anticipating that. And if you go out into the forward-term structures, presently spot rate has Brent at about a $15.80 premium to WTI. But you go six months forward and it’s already down to $12.