When financial commentator that is highly respected, and heretofore basically neutral on gold, such as Dennis Gartman, reckons that 'The Force' that has been keeping the gold price down, presumably through massive paper gold interventions in the futures markets, may well be near defeat, this could be a signal for the big investors and fund managers to get back in to precious metals. And if that does happen then all bets on where gold may end the year are off.
Gartman, whose opinions are much sought after in the mainstream investment sector, reportedly says in his latest newsletter to clients that gold has already breached the key Euro resistance level of €975 and if it should continue its latest upwards move in the dollar next week and breaches $1,325, 'The Force' may have to beat a strategic retreat and let gold find its own level rather than the mostly manipulated one it has been running at for much of the past three years. While he does not mention manipulation per se, it is very much implied in his Star Wars 'The Force' terminology.
Re the Euro, GATA's Chris Powell quotes an excerpt from the latest Gartman Letter thus: "The Force has already lost one very important battle: it has lost the battle at €975/oz., with gold trading now at or near €982 and with the truly psychologically and technically important €1000/oz. level only just a bit ahead. Once €1,000 is taken out -- and we think that it shall be, if not today, then next week if the geopolitical events unwind as badly as we fear they might -- then there is nothing that stems the advance until €1,100, noting that the peak for gold in euro terms was €1,350 back in late 2012.
Too often, commentators look at gold only in dollar terms, but with the Eurozone having a similarly sized population and a GDP on a broadly similar scale to that of the U.S., gold price movement in the Euro has to be equally important in the global picture. Its just that at the moment activity on COMEX seems to be calling the tune.
Gartman's view on geopolitical events also somewhat parallels our own. There are massive dangers ahead for the precarious global financial system with serious fighting in Ukraine, Syria, Iraq and Libya to name but four. Flexing of fundamentalist Islamic muscle in the Middle East and North Africa is to say the least destabilizing and has already again resulted in re-involvement of the U.S. military in Iraq in the form of airstrikes against Islamic State forces—and one can never discount mission creep if the airstrikes prove ineffective.
In Ukraine, reports of Ukrainian forces shelling Donetsk are worrying if accurate and, although denied, a build-up of Russian forces across the border could well be the prelude to an invasion on 'humanitarian grounds' to protect the Russian aligned local population from indiscriminate military attack. Russia has a recent history of effectively annexing friendly Russian speaking areas in the region on similar grounds – could Eastern Ukraine be the next such incursion.
And Russia has now begun to impose tit-for-tat sanctions with the ban on importing European, U.S. and Australian food which has already caused some indignant surprise among the European nations most affected which are calling it 'political'—as if the sanctions imposed on Russia by the U.S. and Europe were not 'political'. Russia imports a lot of western foodstuffs from the EU and is obviously prepared to see its own people suffer from shortages of some of these food supplies in the interests of making its point. It still hasn't cut off natural gas supplies to Europe via Ukraine, but there has to be the indication that this could be under consideration. Russia seems as though it may be quite prepared to inflict hardship on itself in retaliation for western sanctions—a policy the West seems to find hard to understand.
Russia has also been buying gold for its foreign reserves—indeed it has been the biggest official buyer so far this year with purchases of some 60 tonnes moving it up above China in terms of official gold holdings, although it is widely believed the latter has been purchasing gold without yet declaring it to the IMF.
Russia's gold holdings at the end of June this year as reported to the IMF are put at 1,094.7 tonnes—now the world's sixth largest such official holding—and at the same time it has reportedly been disinvesting itself of huge quantities of U.S. Treasuries and setting up bilateral deals with countries such as China to bypass the U.S. dollar on key exports.
There is thus already a financial war ongoing out there. If the U.S. and Europe impose ever stronger sanctions on Russia it looks like the latter is prepared to counter attack and with Europe, in particular, still in a financial mess—almost certainly in recession overall—the Russian moves may tip the Eurozone even further into the red. The big worry is if this all escalates into the global banking sector, which remains precarious.
So Dennis Gartman's views are well worth taking very seriously indeed – as they will be, given his following. The path of the gold price next week will thus be watched very carefully and if there is any indication that $1,325 will be breached and then $1,350—and €1000—then gold could well be set on a strong second half roll. Silver likewise – probably outperforming as is it is wont on the up. Big short positions by financial institutions in both precious metals could exacerbate the situation with a massive short squeeze developing.
This is very much a 'what if' scenario but if the chart points are indeed breached Gartman's warnings will prove to be extremely prescient—and well timed. He is quoted as writing. "Regarding gold, of course it is strong: War is in the air and when war is in the air gold goes bid. What else can gold do? Capital is fleeing to the safe corners of the world, and when that happens it flees to gold." Forewarned is forearmed.