Gartman Letter

"Gold is steady. The news is neutral of gold, unless one takes Dr. Bernanke’s rather placid comments regarding inflation to be modestly bearish. We note firstly that the “legacy” central banks of Europe have been out of the gold market this week, for the ECB reported that its holdings of gold were unchanged in the past week. Gold and gold receivable reported by the ECB were €232.127 billion, unchanged from the week previous. Normally we would expect this to fall a bit to reflect gold sales under the Washington Agreement; however, the banks have seemingly refrained from selling any more gold, with the Agreement due to expire at the end of September.

We are of course modestly… very modestly…long of gold in US dollar terms at the moment, and we are as comfortable as one might be; however, we shall begin to pay more attention to gold in terms of other currencies in the coming days and weeks, for if the bull market in gold is to obtain it shall have to move higher not only in terms of US dollars but in terms of Yen, an and of Sterling, and of the Canadian, Australia and New Zealand dollars, as well as in terms of the EUR and the Indian Rupee. Note then the chart at the bottom of p.1 of gold in EUR terms. In terms of the EUR, gold this morning is trading at or near €670. To become a true bull market we shall soon need to see spot gold trading above and clearly through €700. When it does, we shall be much impressed. So too should everyone else be.

But perhaps more importantly, we shall have to see gold prices in terms of the “commodity” currencies rise too, For example, the trend of gold priced in Australian dollars has been higher over the course of the past several years, moving from A$750 back in July of ’07, just before the global recession began in earnest, to A$1550 earlier this year. Then, as the US dollar fell and as the commodity currencies rose, the price of gold in A$ fell to the point it is now trading at or near A$1150. At the current level, gold is relatively cheap and support is hopefully strong. A movement upward through A$1200 – A$ 1250 would be most impressive, requiring either a much stronger gold price or a much weaker A$, or a bit of both. Clearly the Aussie gold mining companies would like “a bit of both” to restore profitability to the levels seen in February of this year."