Gold market said to be too small to handle China''s diversification

Section:

Gold's get-up-and-go

By Peter Brimelow
CBSMarketWatch
Monday, January 9, 2006

http://www.marketwatch.com/news/story.asp?
column=Peter+Brimelow&siteid=mktw&dist=

NEW YORK -- Forget the stock market. Gold's performance during the
four-day first trading week of 2006 was nothing short of stunning.

The precious metal's supporters among investment letters say there's
more to come.

Up $22.30, or 4.3%, gold surpassed the multiyear high it established
in mid-December, and two days last week saw double-digit gains.
Moves of that magnitude have been very rare in the past decade.

The Privateer, Australia's leading gold-watching Web site, noted
over the weekend that now that gold's consolidated above the $500-an-
ounce level, it has "firmly established itself in the second leg of
what is going to prove a very big bull market."

Of course, the U.S. dollar faltered badly last week, but gold rose
steeply in other currencies too. Indeed, the major currency basket
represented by the Dollar Index lost slightly less than 2%, meaning
less than half the gain that gold made can be attributed to the
behavior of the dollar.

Gold's dynamism has impressed friend and enemy alike. In his latest
Freemarket Gold & Money Report, veteran James Turk, a gold friend,
takes a bold stand, saying readers should "get ready for some huge
and exciting fireworks."

"I do not anticipate gold will again trade below $500 -- ever. ...
Readers know that my target for this year is a new record high for
gold above $850," he wrote. "I am now thinking that we might see
that new record high before the end of March."

Supporting the gold bulls, market sentiment hasn't moved much,
comparatively speaking.

Consider Mark Hulbert's gold newsletter sentiment index, which
reflects the average exposure to the gold market among a group of
short-term gold timing newsletters. It stood at 28.57% at the end of
2005 and closed the first week of 2006 at 42.91%. By comparison, the
index's upper bound of its range is 89.6%.

MarketVane's bullish consensus for gold stood at 85%, exactly where
it started the year. It saw 90% in mid-December.

What of the shares? Both the Philadelphia Gold & Silver Index (XAU)
and the Amex Gold Bugs Index (HUI) were up 9.1% last week, still
rather sluggish considering the move in bullion.

But crucially, they both managed to exceed the top of trading ranges
that have contained them since late 2003. James Turk speaks of "the
XAU just starting to break out from the huge 'head-and-shoulders'
bottom pattern. This pattern presents a multiyear base of
accumulation, which is very bullish. and can support much higher
prices for years to come."

Speaking of sentiment, the gold mutual funds as a group may still
reportedly have experienced net redemptions last week!

So why's gold moving? Some speak of tensions in the Middle East,
others mention apprehension about Ben Bernanke, incoming chairman of
the Federal Reserve. There also are rumors of central-bank buying
and of hedge-fund activity.

Since the gold ETF (GLD) has suddenly started adding large volumes
of gold to its holdings, there may indeed be fresh institutional
appetite.

Freemarket Gold & Money Report's Turk and Le Metropole Caf's Bill
Murphy, who both believe gold has been suppressed by a selling
cartel for years, suggest this syndicate is breaking down,
endangering large shorts. (Full disclosure: Work by my brother John,
an occasional columnist for MarketWatch, also appears on Le
Metropole Caf).

Murphy has just reproduced an article he carried in mid-November
pointing out that huge January call positions had been purchased in
gold equities.

Eerily prescient! Could someone have known something?

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http://www.howestreet.com

http://www.minersmanual.com/minernews.html

http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html

http://www.goldcolony.com

http://www.miningstocks.com

http://www.mineralstox.com

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http://www.321gold.com

http://www.SilverSeek.com

http://www.investmentrarities.com

http://www.kereport.com
(Korelin Business Report -- audio)

http://www.plata.com.mx/plata/home.htm
(In Spanish)
http://www.plata.com.mx/plata/plata/english.htm
(In English)

http://www.resourceinvestor.com

http://www.miningmx.com

http://www.prudentbear.com

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http://www.golddrivers.com/

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Eagle Ranch discussion site:

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Ted Butler silver commentary archive:

http://www.investmentrarities.com/

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