(Kitco News) - Since the start of the year, Dennis Gartman has warned investors that triple tops are meant to be broken, so gold’s recent breakout move to new record highs above $2,170 an ounce was only a matter of time.
In an exclusive interview with Kitco News, Gartman, creator of the Gartman Letter and Chair of the University of Akron's Endowment Fund, said that he expects this is just the start for the gold market as investors protect themselves from a recession that will drag down overpriced equity markets.
“I’m worried about a recession,” he said. “I’m not sure anyone else is, but they should be.”
Not only has gold started its long-awaited bull run, but Gartman said that Tuesday could turn out to be the turning point. This week, gold managed to hold its own as both the S&P 500 and Bitcoin could not hold on to record highs. Bitcoin has seen significant volatility. After pushing above the $69,000 level, Bitcoin’s price fell sharply, ending the day with a loss of more than 14%.
Meanwhile, the S&P 500 dropped 0.6%. Although the broad market index has recovered to push back to new all-time highs, Gartman said the damage has been done.
“The game has changed,” he said. “The stock market is ridiculously overvalued; it would be comical if it weren’t so serious. The fact that you've had such weakness, not just in stocks but in Bitcoin too, and gold has held its own, that’s impressive, and you have to pay attention to it. This is an impressive breakout of real consequence for gold.”
One of the reasons why Gartman said he is pessimistic about the health of the economy is because U.S. debt continues to spiral out of control. In a recent report, analysts at Bank of America pointed out that the debt load in the U.S. is increasing by about $1 trillion every 100 days.
“I never used to be concerned about the debt, but it is growing out of control; it’s growing exponentially,” he said. “I will have a granddaughter in about two weeks, and she will be born indebted to the United States government.”
Gartman said that in this environment, the Federal Reserve, despite its tough talk, will eventually have to lower interest rates. So far, the U.S. central bank has been reluctant to signal the start of a new easing cycle as it tries to get inflation under control.
Federal Reserve Chair Jerome Powell wrapped up two days of testimony on Capitol Hill and reiterated his stance that the Fed will lower rates this year, just not now. He said the central bank needs to be more confident that inflation is falling to its 2% target before cutting interest rates.
“The Fed may not even cut rates this year, but there's no question that over the course of the next year or two, they will have no choice but to allow the overnight Fed funds rate to go back down to 3 percent or so,” he said.
Along with lower rates, Gartman said that it’s only a matter of time before the Federal Reserve increases its balance sheet again.
“From here on out, as the debt becomes more and more egregious, the Fed will be the only logical long-term buyer, so the Fed's balance sheet will go back to nine billion over the course of the next several years, and that will be the driving momentum to take gold to $3,000 an ounce or higher,” he said.
Gartman said that it's only a matter of time before investors become more worried about government debt levels, and that is the reason why he believes gold prices have room to run. Despite the recent breakout, Western investors continue to shun gold as SPDR GoldShares (NYSE: GLD) continues to see outflows. Gold holdings in GLD have dropped to their lowest levels since late July 2019.
Gold is going higher, but the real value is in mining stocks
While Gartman is bullish on gold, he said he is putting money in the VanEck Gold Miners ETF (NYSE: GDX). Outside of short-term treasuries, his stake in senior gold producers is the biggest position in his personal portfolio.
“The relationship between GDX and GLD has gotten so one-sided in favor of GLD. GDX is ridiculously undervalued, and the gold miners are oversold to a preposterous degree,” he said.
Gartman noted that gold miners are as cheap as they have been in decades, and they offer investors value as the broader market starts to weaken.
