Exchange your forint to gold! – An interview with the ’king of raw material markets’

A more balanced raw material market is predicted for the next period by Dennis Gartman. The American expert, who has been following the raw material and energy carrier market developments for forty five years, and who is also the owner of Gartman Letters, says that the China-centric world economy has ended. He says we do not have to worry about China: even though its development will be more predictable, it will be slower and more stable. However, it will not cause raw material markets to crash because Europe, North and South America, and Africa will grow reasonably faster compared to the last years, so their demand for raw materials will be even more significant. The stop of the oil price increase is not solely due to the agreement with Iran, but mainly due to the revolution of the new American fracking technology (hydraulic fracturing in horizontal drilling). Gartmam sees a brighter future for the dollar, which is why he would not exchange his dollar to gold. However, he recommends buying gold to those with currencies underperforming compared to dollar.

Péter Zentai: What long and short term effects will the most recent Greek developments have on the markets?
Dennis Gartman
: Everyone will be relieved and things will settle down for a while. On the long-term, as they say: ‘we will see’. Uncertainty and stress have decreased prices on raw material markets – as we saw that in the last few weeks. Now we can expect some fluctuation, then an increase of prices: copper, steel, food and crude oil will be more expensive – which is the direct consequence of relief.

Will the price of crude oil go up? The agreement with Iran and the now accessible Iranian oil export should push prices down instead…
Any substantial rise of prices in the world market of oil is almost impossible now. Soon the global supply will be increased by half million barrels a day.  This is a result of the agreement, presuming that the case will not be delayed any longer. I am quite certain that America will decline the agreement. On the other hand, Saudi Arabia – the biggest competitor of Iran – will comply: it will utilize everything in its hands to keep its market position, and to assure its competitor that it should not feel safe even for a second. We are witnessing a rare event in history: Saudi Arabia and Israel are in the same boat…
Taking every relevant development that can affect the oil market into account, I believe the maximum of the American WTI oil in the next 12 months will be between 50 and 60 dollars, while Brent Oil price will be around 64-66 dollars. I would not be surprised if a 45 dollars average was stabilized for WTI.

Can anything absolutely unexpected happen in the Middle East or Russia – or in terms of oil price, America is almost the only one dominating?
I suppose you mean that the United States is the absolute pioneer of the fracking technology (hydraulic fracturing technology in oil and gas exploration). Indeed, this technology has brought a new era in the history of economy. I cannot see why Europe has not started utilizing it: Europe cripples itself; it falls behind in this field. Developments in fracking technology are not tied to our American land and geological properties. They are just as viable in Africa, Russia and Europe too.
Updates have been coming quite rapidly about small and recently founded, but responsive American companies with interests in shale gas and oil exploration, which introduce innovations and developments, vigorously reducing extraction costs. Five years ago, such companies went bankrupt if WTI or Brent price dropped below 75 dollars a barrel. Now, these companies are break even at 35 dollars oil price!

What does it mean?
It means that the revolution of hydraulic fracturing technology, which has not spread to other continents yet, but it certainly will, can maximize oil prices and weaken the geopolitical position of Russia, Iran and Saudi Arabia. There are no schemes for power behind it; the government of the United States does not intervene in these developments. It is pure innovation, research and development based on the market. There is nothing else behind it.

Nevertheless, in a recent TV interview, I did hear you saying it was possible to make money on the arrival of Iran…
I was talking about oil tankers. Two years ago was the best time to enter this business. After a year, shares of oil transporter manufacturer and operator companies doubled. It is still worth investing in these companies, even if prices are not expected to double in the near future. However, if we keep track of Iranian news, we know that they will need at least 40-50 new tankers for their new export.  Iran has already ordered ships from Korean and Japanese manufacturers. (These are the only two countries that can produce tankers.) There is a severe worldwide shortage of such vessels; the old ones are scrapped for environmental protection reasons, while the world’s demand for raw materials is growing, and there are not enough new tankers on the market to meet it.

How do you explain that oil prices went above 100 dollars one and a half years ago? Fracking technology already existed back then, and it was clear that the Chinese economy was slowing down and Europe was – so to say – stagnant.
Institutional investors and portfolio-managed assets were ‘rolling in cash’, and were flooded with money by small and large investors. They simply did not see any other alternative other than entering raw material market. Apart from financial speculation, there is no other explanation how oil prices jumped from 70 to 100 dollars within such a short time. The bubble had to burst for the prices to reflect reality.

Is this what we are witnessing in Chinese capital markets?
Exactly. The absurdly inflated shares have dropped by 50-60 percent in China. It is a good thing. There is no need to worry about the country. I am one of those who are sure that China’s development will be predictable and dynamic in the coming decades. They will get used to – just like we did – that their GDP will grow by 6-7 percent instead of 10-12 percent…

This slowing rate should push the price of basic raw materials and energy carriers even lower…
China’s slowing down and stabilization at a lower level will be balanced by the economic growth of North and South America, and Europe.  The lower China’s demand for raw materials, the higher the others’ is. The development of the China-centred world economy, which was troubling even for the Chinese, will finally be over. It is absurd that – and I am making a wild guess – ninety out of a hundred products is manufactured in China. Ratios are beginning to shift towards a more sustainable balance: thirty percent China, thirty percent North America, twenty percent South America, and ten percent Europe. And in the meantime, I think, Africa will unstoppably push forward.

Will gold get any serious role in this market shift?
I respect and consider arguments and predictions that are heard around the rising and falling of gold prices to be rational. I cannot be bothered why the price of gold mines is falling, while the physical gold’s is stagnant.
I regard gold as a form of currency. Just like the dollar, the euro, or the yen. I have absolutely no intention exchanging my dollar to gold – because I see the dollar to take off. Fed ends quantitative easing and stops diluting the value of the dollar. It is a known fact. However, it is also a fact, that the Japanese and European central banks have just started experimenting with quantitative easing. None of them will stop it in the near future, which means they are weakening the yen and the euro exchange rates against the dollar. As a result, I would exchange the weak (in comparison to the dollar) yen and euro to gold. Last year, it would have been especially worth exchanging rouble to gold – this is what I recommend for every investor in countries with currencies that are weaker than the dollar. As far as I know, the currency of Hungary is in this situation. If I were you, I would buy gold.

Original date of Hungarian publication: July 16, 2015