Peter Brimelow: Friday will be historic day for gold


By Peter Brimelow
Friday, November 22, 2006

NEW YORK -- Is he or isn't he?

The Gartman Letter's Dennis Gartman is seen so frequently in the media as to resemble a hot newsletter at its sizzlingest.

His media distribution circuit (not including me) is similar. But the price is not: More than $6,000 a year, I am told.

For gold bugs, the question is the same, but different: How come this vociferous negativist on the role of gold seems in fact to have been about the best trader of the recent gold rally? Including going long virtually at the bottom in early October below $580. And in fact has probably been the most prone to use gold over the past couple of (dramatically positive) years.

The question is particularly critical because Gartman bought more gold (a fourth "position") on the opening Wednesday morning. For a while, as gold surged by more than $6, this looked like a genius call. Eventually, gold corrected and finished up only 30 cents.

But of course the party is not over.

Friday, in fact, will be a historic day: It will be the first occasion on which the Chicago Board of Trade gold contract is open when the Comex division of Nymex is closed. The CBOT contract became a serious competitor to New York's within the last year.

The Chicago contract outflanked New York by going electronic. In commodities courses at Stanford Business School a million years ago I was taught that an entrenched futures markets could not be displaced. They reckoned without the computer.

This means that Friday could actually be an interesting day for gold in America. If speculators wish, they can make a statement.

A key Gartman motivation was that the dollar looked likely to break. This in fact happened. As Richard Russell wrote Wednesday evening, "the dollar index plunging below its lower trendline was the most significant move of today. I'll be watching this whole picture carefully on Friday." (Russell, who is 82, does not believe in long weekends. He is thought to be saving these for retirement.)

Russell has a qualification: "However, if it's really breaking down, I was surprised that gold didn't move higher today."

A question that loyalists to Bill Murphy's LeMetropole Café service would be eager to answer: surreptitious selling from the official sector -- central banks.

Someone has clearly been selling. The streetTRACKS Gold ETF (GLD) reached a new record gold holding on Wednesday evening (418.84 tons,) and Tuesday's firm but not exceptional $6.60 gain turned out to have involved the addition of the equivalent of more than 6,900 Comex lots to the open interest of the New York and Chicago futures markets taken together. That is a big quantity, indicating that fresh buying is being fairly freely supplied.

In the end, the best current perspective on the gold market may turn out to be supplied by one of the older newsletter services: MarketVane's Bullish Consensus. On Wednesday evening, its reading for gold stood at 65 percent. In early May, at the gold peak, it was 92 percent.

By ominous comparison, the Nasdaq reading, 74 percent, is the highest since this service began breaking Nasdaq out separately at the beginning of 2003.

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