China should put more foreign exchange into gold, official paper says

Section:

By Peter Brimelow
CBSMarketWatch.com
Monday, May 22, 2006

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B9FEDCC1F%2DE2D4%2D43E9%\
2DB722%2D32D10A914CDA%7D&dist=rss&siteid=mktw&rss=1

NEW YORK -- This week's gold question: Is it a bull
market after all? The veteran gold bugs are impressed,
but not panicked, by last week's sharp retreat.

And it was quite a retreat. As GoldMoney's proprietor,
bullion market veteran James Turk, summarized tersely:

"Having climbed to and slightly above $715, last week,
gold corrected, closing in London on Friday at
$654.50, down $65.10 from the $719.60 close the week
before. That is the largest one-week decline since
March 14, 1980, when gold was sliding lower after
reaching its all-time record high just two months
before. In percentage terms, last week's 9% drop was
the largest since March 4, 1983."

Next, a MarketWatch proprietary word: The impact on
sentiment has been dramatic. The Hulbert Stock
Newsletter Sentiment Index for gold dropped from 51.8%
to 8.93% during the week.

That is the lowest reading since March 24, when gold
was again attempting to clear $570 (this time
successfully.) The recent high was 73.2% on April 19
and 20, following gold's topping $600.

That sure looks like panic among the masses -- great
from a contrary opinion point of view. Mark Hulbert
made a similar point Friday about the parallel slump
in stock market sentiment.

The MarketVane service's Bullish Consensus, which
tracks futures traders, behaved even more dramatically
over the week. It dropped 22 points to 71%, which is
the lowest reading since Aug. 31 (when gold was
$435!). The recent peak was 92% on May 5.

Last week, I quoted Dow Theory Letter's Richard
Russell making long-run optimistic noises. This week,
the short term has got Russell's (always nervous)
attention.

Like many, when in doubt he turns to charts. On Friday
he deployed a point-and-figure chart ("one P&F chart
is worth all the talk of all the advisers taken
together.") He concluded: "Today gold ... turned the
P&F chart bearish ... Thus gold is in full correction
mode with the 'support' coming in at the $645 area."

Interestingly, the Australian service the Privateer, a
long-time friend of gold, makes available to the
public its own mega-point and figure, on a totally
different scale, which approximately supports Russell.

Privateer and others now speculate that $715 will be a
significant resistance level on in what they still see
as gold's upward march.

Still, for the record, not all chartists agree that
gold is going to pause. InterMarket Review's Martin
Pring, who employs a momentum charting system, said
this on Thursday evening: "Gold and the shares are
each resting above support trend lines following a
sharp decline...it is likely that a near-term rally
will develop from this support."

Others see significance in the very modest losses and
late-day recovery in the gold shares on Friday. Once
again, gold shares have displayed eerie prescience.
The HUI started sliding on May 11, the day before gold
peaked, and lost 20% by Friday's close.

None of this concerns Bill Murphy's Lemetropolecafe
site. Murphy and his team of writers see gold prices
as a struggle between physical offtake, and a
malevolent central bank-investment bank alliance to
keep the credit boom going.

The site has confidence in one of its favorite
indicators: the relationship between Indian and world
gold prices. India, the world's largest gold importer,
turned a strong buyer in their afternoon on Friday,
with world gold at $679.50. Lemetropolecafe's
conclusion:

"Gold's subsequent $20 collapse will present a major
buying opportunity for India, the best in fact since
last Christmas."

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