Gartman: Why you can expect gold, oil to go even higher

While 2013 saw declines of 28% in gold, this year is lookinga lot different. The yellow metal is up over 7% since the first of the year.

According to Dennis Gartman, editor and publisher of TheGartman Letter, gold's gains will continue. Though he was bearish on bullionlast year, he's now changed his view.

"In the past week or so, it's been necessary to turnbullish of the gold market," says Gartman who notes that the metal hasbroken above key resistances not only when priced in US dollars, but alsoagainst the euro, the yen, British pound, and Australian dollar. "We'reseeing some important breakouts in the currency gold relative to all othercurrencies and I think that's important."

Gartman sees the continuation of the Federal Reserve Bank'smonetary stimulus, global currency deflation, and the bottoming of commodityprices all as potential reasons for gold's reversal. But, he also adds thatdemand from China is adding to the rally.

"The Chinese are back buying gold in a ratheraggressive fashion," says Gartman. "China's demand for gold last yearwas up 41% from the previous year. Those are impressive numbers."

As well, Gartman sees the rally in oil prices continuing.The US benchmark West Texas Intermediate (WTI) Crude contract is trading aroundthe $100 level.

Gartman notes that the term structure of WTI contracts isbackwardated. That means contracts for delivery on the near months are tradinghigher than contracts for delivery at a later date. For example, contracts forcrude delivery next month trade at around $100. Yet one can purchase a contractnow to deliver a barrel of oil in December 2018 for just $78.

Markets are backwardated for a couple of possibilities. One isthat the market anticipates prices in the future to fall due to, say, futuresupply increases. As well, it could also be because the commodity is in highdemand for immediate use.

"It's the oldest rule in the book for commodity traders,"says Gartman. "You don't sell a backwardated market. It tells you thatdemand is strong. Here in the States, given the enormous increase in production,all things being otherwise equal, you would expect to put crude oil pricesdown. They ain't going down and the market remains backwardated. Markets thatwon't go down on bearish news probably are going up."

To see the full interview with Dennis Gartman on what's nextfor gold and oil, watch the video above.

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