Is the Gold Bull Really Dead?

Economist Dennis Gartman announced in his newsletter, yesterday, that he has sold all of his gold. I don’t know if it was physical or paper gold in an ETF (exchange traded fund), but it is gone.

According to Bloomberg, Gartman said, “Since the early autumn here in the Northern Hemisphere gold has failed to make a new high. . . . Each high has been progressively lower than the previous high, and now we’ve confirmation that the new interim low is lower than the previous low. We have the beginnings of a real bear market, and the death of a bull.” Mr. Gartman thinks so much damage has been done to the price of gold and to market psychology that, in his words, “. . . wholesale liquidation, and perhaps forced liquidation, shall be the outcome.” (Click here to read the complete Bloomberg story featuring Mr. Gartman’s call on Au.)

I think Mr. Gartman is a trader at heart, but there is a big difference between a gold trader and a gold investor.

Traders are usually looking at the short term, and in the short term, Gartman is probably correct. The price of gold will probably sell off some more before this move is through, but the gold bull is hardly finished.

I say this because of two main reasons. Unprecedented global debt is reason number one. More debt has been created than ever before in human history. Global over-the-counter derivatives total more than $700 trillion according to the Bank of International Settlements (BIS). (This is more than a $100 trillion increase from the BIS number from December 2010.)

This is a staggering amount of debt that is more than 10 times the entire world GDP. You cannot “grow” your way out of this kind of leverage. This is a mostly unregulated dark pool of debt bets with no rules, guarantees or public market.

Dr. Marc Faber of the popular GloomBoomDoom.com recently predicted one day the entire derivatives market will, “. . . cease to exist and become zero.” Farber thinks that “global collapse” is coming and “most people will be lucky to still have 50% of their wealth in 5 years’ time.” That is one big reason to hold physical assets like gold. (Click here for more from Dr. Marc Faber.) Gold should be looked at as insurance. Selling your physical gold now would be like driving your car or living in your home without an insurance policy.

When it comes to Europe and the bank solvency crisis, the euro could disappear, but, then again, don’t think the money printing is over—it’s not.

Dr. Stephen Leeb of Leeb Capital Management said in a recent interview, “So the Germans are really flirting with the same kind of situation that occurred in the 1930s. If Europe continues to sink and the Germans don’t relent on this stuff, we are going to head for a real deflationary depression. My big picture is that Merkel and the Germans will allow the printing of money, and once that happens, just as it happened in 2008, once you get a sign, that’s blastoff time for gold. Gold and silver will shoot up like rockets. In my opinion, gold will close 2012 at $2,500 or above, probably above. Gold could easily double from here in the next 12 months if you get the kind of money printing that I expect to happen in Europe.” (Click here for more from Stephen Leeb.)

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