Gold is likely to trade in a range between $1225 and $1100 for the course of the remainder of this year, says Dennis Gartman, author of the very successful Gartman Letter.
Gartman dismissed fears of a second dip into recession for the US, saying that, while it is not impossible, it is highly unlikely, given the man at the helm of the Federal Reserve.
"I think Mr Bernanke understands clearly that any further weakness in the economy, any further signs that consumer spending is falling, any further weakness in the housing market, any further declines in durable goods, will mandate that a new round of over-easing, a new round of Fed activity, a new bout of Fed buying of treasury securities and agency securities and even perhaps corporate securities is around the corner, so I doubt seriously that a double dip is likely. It happens, it's rare but I would not place great odds on that."
Rather, Gartman expects to see the US economy and, indeed, global economic circumstances quietly getting better.
But, he cautions, the era of 4% and 5% GDP growth in the United States is probably not going to be seen again in a very long period of time.
"What is disturbing to me is that the monetary aggregates, despite what everybody wants to tell you are simply not growing. The adjusted monetary base, which is the aggregate that I pay the most attention to, as reported by the Federal Bank of St Louis, has gone sideways, in fact it's even very slightly lower since October of last year."
He argues that this is not what we should be seeing, and while it is correct to say that in 2007, 2008 and 2009 the base exploded to the upside, he believes that that explosion was a response to the banking crisis "that that money has to remain in the system, perhaps almost permanently".
"I would rather see very quiet 3% to 4% growth in the adjusted monetary base, which would be correlative with 3% to 4% GDP growth. Instead, we are seeing negative growth in the monetary base and that to me argues for deflation instead of inflation; it argues at best for tepid slow, economic growth and I would prefer to wait and see. I hope I see much better activity, much more historically proper 3% to 4% growth in the adjusted base. I hope that's coming.
What does this mean for gold?
Gartman says, that if this scenario plays out, he isn't expecting too much from gold. It will probably just "simply go sideways," he says.
But, he adds," Gold is quietly becoming a reservable asset and honestly in 10 or 15 years it will be the US dollar, gold and Renminbi, which will be the major reservable assets. Take that as you wish."
