There’s something odd happening currently in the gold market, and it has commodities investor Dennis Gartman staying on the side of caution.
Gold ended Friday with its biggest weekly drop in two months, and its third straight week of losses whereas the dollar saw its third straight week of gains. This comes from the central bank indicating that markets were underestimating the likelihood of an interest rate increase in June or July.
This suggests investors may be positioning themselves for higher rates—a possibility not ruled out my Gartman who is watching the movements with interest in the yellow metal.
The editor and publisher of The Gartman Letter has advised to stay on the side lines in terms of trading gold in US dollar but likes the notion of owning gold in non-U.S. dollar terms, particularly in yen and euro.
“I would be hesitant at owning gold in dollar terms,” added Gartman. He’s foreseen growing speculation that the Fed will raise interest rates this summer, and that the market is in the midst of a gold correction following the release FOMC minutes from April. “As we know, a strong dollar begets weaker commodity prices.”
So when should investors come off the sidelines? Gartman feels the time to be bullish on bullion is not until after the first interest hike of the year. This is raising the assumption that a rate increase will eventually happen in 2016.
Regardless of the recent weakness in the gold market, the precious metal still surpassed equities this year, having rallied more than 18 percent since the start of 2016.