When's it safe to buy gold? After the Fed hikes, Gartman says

Something strange is happening right now in the gold market, and it has commodities investor Dennis Gartman erring on the side of caution.

Gold ended Friday with its biggest weekly drop in two months, and its third straight week of losses. Conversely, the dollar saw its third straight week of gains following comments from New York Federal Reserve President William Dudley. The central banker indicated that markets were underestimating the likelihood of an interest rate increase in June or July.

The backdrop suggests investors may be positioning themselves for higher rates—a possibility not lost on Gartman, who has taken note of some interesting movements in the yellow metal.

"There has been an aggressive seller of spot gold at 1,270 to 1,285," Gartman told CNBC's "Futures Now" in an interview. "Whoever that person or institution is will likely continue to be there until after a rate increase," he added.

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Watch out for that dollar

"If you have to trade gold, stay on the sidelines in terms of U.S. dollars," the editor and publisher of The Gartman Letter said. While he likes the notion of owning gold in non-U.S. dollar terms, particularly in yen and euros, he feels a rising dollar will continue to put a ceiling on gains for bullion.

"I would be hesitant at owning gold in dollar terms," added Gartman. He cited growing speculation that the Fed will raise interest rates this summer, and that the market is in the midst of a gold correction following the release FOMC minutes from April. "As we know, a strong dollar begets weaker commodity prices."

So when should investors come off the sidelines? Gartman feels the time to be bullish on bullion is not until after the first interest hike of the year. Operating under the assumption that a rate increase will eventually happen in 2016, Gartman is urging investors to avoid gold in the near term, as he expects an active market to remain after the central bank acts.

In theory, higher rates should help boost the dollar, thus making it harder for gold to gain. However, the veteran trader insisted that the time to be long gold is in the aftermath of a hike.

Despite recent weakness in the gold market, the precious metal is still far outperforming equities this year, having rallied more than 18 percent since the start of 2016.


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