South Africa might increase gold reserves, central bank governor says

Section:

By Peter Brimelow
CBSMarketWatch.com
Monday, November 14, 2005

http://www.marketwatch.com/news/story.asp?guid=%7BE41A33BD%2D28D2%
2D448C%2DB004%2D275D91CAADEB%7D&siteid=mktw&dist

NEW YORK -- Even gold's friends seemed surprised by its strength last
week, rallying by 2.5% on the New York Mercantile Exchange. The gold
game may not be over yet.

Australia's Privateer, which bills itself as "the private market
letter for the individual capitalist," summarized the recent action:

"This was a 'recovery' week for the ... gold correction. ... On the
daily chart, last week's $16.90 gold fall pushed gold well below both
its 10- and 20-day moving averages. The $11.50 rise this week has
reversed the process."

The previous week's pummeling was severe. And this last week saw a
rampage by the dollar. Oil -- which many presume sets the tone for
gold -- was soft, world equities were strong. If that were not
enough, Germany's fledgling government has started talking about
selling part of the country's gold reserves.

Yet gold did well -- better, in fact, than the simple dollar-
denominated price suggests. As The Privateer says in its omniscient
way:

"By November 11, gold was at new bull market highs in terms of almost
every other major currency in the world. And this time, that includes
at least one of the 'commodity currencies,' the Aussie dollar ... all
in the face of a U.S. dollar index which has set new 2005 highs
almost every day this week."

Gold in euros was particularly impressive. It closed on Friday at an
all-time high -- actually above 400 euros per ounce, based on the
Nymex close.

This is important, because on both occasions this year when euro gold
has broken into new high ground, considerable follow-through buying
appeared.

Equally impressive was that fact that the gold shares noticed.
They've rudely ignored gold's strength this year, but maybe not this
time.

Chartist Martin Pring, a believer in the predictive powers of the
sector's equities, assessed the Amex Gold Bugs Index on Thursday in
his InterMarket Update as follows:

"The shares typically lead the metal at bottoms, and the Chart shows
that they have diverged positively with it in recent weeks. ... If
the shares can now rally above the 230 level on a daily close basis,
the odds would favor a successful assault on September's high. In
that event, we would expect the metal to be close on its heels."
(Pring's price point was pinged -- Friday's close was 234.26!)

Gold's friends have dark theories about why gold went down the
previous week. As Bob Bishop of Gold Mining Stock Report put it:

"Q: What's the best time to rob a house? A: When nobody's home. This
was the same rationale behind last week's short raid on the gold
market, timed to coincide with the holiday closure of the Indian
markets."

Why gold went back up, though, divides the letters.

The Gartman Letter, for one, has suggested there's been some
purchasing by smaller central banks. And Bill Murphy
(LeMetropoleCafe.com) has a correspondent identifying South Korea's
central bank.

Those who incline to a macro view, however, had an arresting fact to
consider. It was well put by gold veteran James Turk of the Free
Market Gold & Money Report. Turk wants to "berate the Fed for an
unbelievable announcement made this past week. Without explanation,
the Fed disclosed: 'On March 23, 2006, the Board of Governors of the
Federal Reserve System will cease publication of the M3 monetary
aggregate.' "

Not unreasonably, Turk concludes:

"Why does the Fed no longer want to report the total quantity of
dollars in circulation? They know what's coming -- massive amounts of
dollar creation to fund the worsening trade and federal government
budget deficits. The Fed is just doing what other government agencies
already do when they don't like the result of their statistical
calculations. Like children, they play 'make believe.' "

The Fed might have been more discreet. But is gold watching?

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