Gartman: Higher Commodity Costs Makes Retailers Attractive?!

A North East blizzard and a boom in agricultural futures weighed on retailers yesterday. But Fast Money Contributor Dennis Gartman cautioned against selling the retail sector today on soft commodity price hikes.

Most retailers can easily pass along higher commodity costs, said the author of the renowned Gartman Letter. “The price of a new shirt has probably gone up $10 and the price of cotton has gone up a nickel,” said Gartman, adding that many retailers would use the excuse of rising commodities to raise prices.

“If restaurants and clothing companies have the ability to raise prices… and margins are not going to be squeezed, you could see a reversal of thinking,” added fellow Fast Money Contributor Brian Kelly. In other words, the ability to pass on prices would only add to a January rally.

Though consumers can easily absorb an extra dime per shirt, however, they quickly balk at higher gasoline prices, Gartman said. Gasoline prices are already near $3 per gallon in parts of the country. A fifty-cent increase could lead to cutbacks, he cautioned. “At $3.50, you start to make some changes,” Gartman said.

Commodity prices were also on Joe Terranova’s radar today with Fast Money's Liquidator watching gold’s reaction to China’s rate hike over the weekend. Gold prices were up more than 1% since China announced a 25 basis point increase in the one-year Yuan lending rate. “Gold had a chance to go down and it couldn’t,” said Terranova.

In light of the price action, Kelly was adding to his gold positions today. Gold could go to $1,500 in the next 60 to 90 days, said Kelly.

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