Three Reasons Why Gold is Headed Lower- Gartman.... And Why He is Mostly Wrong.

Dennis Gartmen's reasons as to why gold is going lower......

1. No more easy monetary policy:Gartman says: “Gold needs ‘fuel’ – and lots of it – to move higher. That fuel is easy monetary policies. The Fed has signaled that its era of easier policies is ending and hence the ‘fuel’ is being reduced.”
2. Other commodities are falling:Gartman says: “Gold also needs help from other commodities to ‘fuel’ inflation and that is simply not coming from the commodities markets. The grain markets are at best moribund and the energy markets are stable, with crude rising while natural gas is falling.”
3. Margin calls:Gartman says: “Gold has problems with ‘margin calls’ in the immediate future. Stock prices have weakened and margin clerks look to gold as a mean to raise liquidity.”

Of these reasons, only number three in my mind has any validity. The ETF structures in the market alone suggest that selling begets more selling..... which for long-term investors presents opportunity but I digress. More importantly, points 1 and 2 are just plain wrong. First, the easy money policy is not ending. The easy money train has not stopped its acceleration since 1995 or a period of nearly 20 years. See the chart of the M2 money stock below.



Yes, past results do not guarantee future events but why after nearly 20 years will the Federal Reserve and other central banks just stop creating money now? The answer is they won't. Doing so would create extraordinary risk in the economy and the markets. Remember that the pullback of just about $30 to $40 billion in y2k related stimulus helped caused the market crash in March/April of 2000 and a stall in economic growth. Now we are sitting with an economy being propped by over 20 cents of base money per unit of GDP and one where growth is hanging at just above stall speed. The risks of a drawdown or slowing in money supply are tremendous.

Secondly, Gartman shows he has no concept of the definition of inflation. Inflation is everywhere and always a monetary phenomenon and is defined by the general increase or outsized growth in monetary supply. M2 money stock is presently increasing at a year-over-year rate more than 5% versus GDP growth of about 1.7% to 1.8%. I think that constitutes as inflation. And just because excess money supply is playing the proverbial game of hot potato primary in financial assets and not other goods does not mean inflation does not exist.