China''s official voice sounds awfully partial to gold

Section:

By Peter Brimelow
CBSMarketWatch.com
Monday, February 13, 2006

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B0964EAB0%
2D94B4%2D4E81%2DB523%2DC20C118A98C9%7D&siteid=mktw&dist=

NEW YORK -- Gold breaks sharply off multi-year highs. But the gold
bugs aren't flinching, including one of the most famous.

After reaching $572.15 on Feb. 2, gold closed at $550.20 on Friday.
But gold's friends are heartened by the fact that the "Bullish
Consensus" tracked by respected institutional service Market Vane
had reached an extreme peak on Feb. 2 and has now retreated equally
dramatically, suggesting that traders are far from stubbornly
bullish.

The Hulbert Financial Digest's Hulbert Gold Newsletter Index is
contracted on different principles, but also shows a rapid retreat
in the past week. Mark Hulbert interprets this as good for gold, on
a contrary opinion basis.

The latest issue of the monthly International Harry Schultz letter
arrived about the time I was supposed to file this column. The
flamboyant Schultz has been a notorious gold bug for four decades --
notorious because of his flamboyance; he's actually very quick to
trade -- and his recent successes and long-term Big Thinking caused
me to name him 2005's Investment Letter of the Years.

Schultz's take on gold's recent action: "Was the gold price drop
last week caused by being over-touted (in the media) and overbought,
and with a bearish chart parabolic curve and bearish up wedge? OR by
the gold cartel? Yes! Both. The price fixers have chartists too
(they run two of New York's biggest banks) and they know when any
market ... is oversold, technically. So they know when to place
their bets."

Schultz went on to give the clearest statement I've seen from him of
the theory, widespread among investment letters but recently
endorsed in a report by France's Credit Agricole bank, that the
official sector has been intervening in gold and other financial
markets:

"They (the so-called Plunge Protection Team) subsidize the U.S.
stock market when it sags to a major chart support area, which dare
not break least weakened public confidence cause a crash. And they
know when gold has risen to an overbought level, so they sell it
short. They usually make money maneuvering for their de-facto CEO,
the U.S. government. ...They also usually make money on their gold
shorts, by buying back after substantial falls. THERE IS NO FREE
MARKET. U.S. government prevents markets having healthy adjustments,
which correct inefficiencies. ..."

Schultz remainssanguine aboutgold: "We had a similar gold selloff
in early December (lasting seven market days and dropping $40) but
last week's was more significant as the rise went to historic highs
and thereby changed people's attitudes. ...This correction may also
drop $40, IMO, and will be of no importance except to allow the
market to work off its overbought condition. Could it fall more than
$40? Markets can do what they like (as can the Plunge Protection
Team) but there's technical gold support at 540, 530. 500, 490, 480,
and the ultimate gold support at 460. ... I think 530-540 is the
most likely low."

Schultz's strategy is to trade: "You should sell when THEY do, or
BEFORE, if possible (perhaps via our GoldCharts R Us service.).We
told GRCU subscriptions to take profits a full week before this
latest fall, in bold terms. ..."

Schultz warns of gold "mini-crashes" -- which don't sound so mini;
he means 50 percent-80 percent corrections in the gold stocks.

But long-term, his view is very clear: "We're in a major gold bull
market thanks to excessive bank and government credit and money
creation. ... $600 is our next target, then $900, on the way to
$2,000."

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