(Kitco News) - While gold’s long-term uptrend remains well supported by bullish fundamentals, the market is looking a little frothy and could be due for a correction, according to famed commodity investor Dennis Gartman.
In an interview with Kitco News, Gartman expressed some concern over how much attention gold has attracted in the last few weeks. Renewed investment demand has pushed prices above $2,800 an ounce.
“I remain long-term bullish on gold, but in the short term, I am modestly concerned,” he said in last week’s Gartman Letter.
“The public has become somewhat enamored of gold over the past two weeks. That bothers me a bit,” he said in the interview.
Gold prices have dropped sharply from Wednesday’s all-time highs, with December gold futures last trading at $2,746.20 an ounce, down nearly 2% on the day. The selloff in gold has intensified as the U.S. economy has remained fairly resilient, and inflation pressures have held steady for the last three months.
On Thursday, the core Personal Consumption Expenditures (PCE) Index, which excludes volatile food and energy prices and is the Federal Reserve's preferred inflation gauge, showed inflation over the last 12 months holding at 2.7%, unchanged from July and August levels.
In this correction, Gartman said he could see gold prices falling another $50 in the near term as investors adjust their inflation expectations. He added that the potential for a correction in equity markets could also contribute to gold’s near-term risks, potentially triggering a liquidity event.
These comments come as the S&P 500 has fallen nearly 2% this week and is down 2.5% from its all-time highs reached two weeks ago.
“Weaker stock prices generally will put some downward pressure on gold, because gold will always be a place where liquidity can be found to meet margin calls,” he said.
However, looking beyond gold’s short-term volatility, Gartman said he remains a long-term bull.
“The major trend is still from the lower left to the upper right,” he said. “Gold in dollar terms continues to be strong; gold in euro terms is even stronger, and gold in yen terms is the strongest of all. I will continue to advise people to own gold in dollar terms, in euro terms, and in yen terms.”
Gartman noted that gold remains well supported as geopolitical uncertainty drives safe-haven demand, and central banks continue to increase their exposure to the precious metal.
Although official sector demand has slowed in recent months, Gartman expects elevated inflation to compel central banks to keep adding to their gold reserves for the foreseeable future.
“I don’t think inflation has gone away; in fact, I think it will only continue to worsen,” he said. “It doesn’t matter who is elected to office—government debt will continue to rise, driving inflation higher, which will be troubling for economic activity.”
