Peter Brimelow: After rude start to '07, gold bugs have reason to hope

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By Peter Brimelow
CBSMarketWatch.com
Monday, January 15, 2007

http://www.marketwatch.com/news/story/after-rude-start-07-gold/story.asp...

NEW YORK (-- Three weeks into 2007, but it's already been a long year for gold bulls. However, relief may be in sight.

The year started with so much promise that The Gartman Letter -- loudly self-proclaimed a non-gold bug but also regarded as one of the best gold buyers around -- went long at the first opportunity.

Theories about the sell-off range from economic slowdown to orchestrated shift in assets.

Gartman's courage was rewarded with a savage beating in the year's first week, which culminated in a drop of almost $20. But then gold edged up quietly, before staging a spectacular $13 rally last Friday, to close at $625.40.

Gold's action was of course accompanied by even more -- and earlier -- damage to commodity prices in general. Several of these also reversed on Friday, notably the grains.

What was going on? The standard Wall Street view: Commodity markets were recognizing the economic slowdown -- interest rates will be lower -- so go out and buy stocks!

For the most part, the chart-oriented newsletters were beaten into agreement. Comparing a chart of Natural Resource vs. Consumer Staple indices, Pring.com's Martin Pring in his mid-weekly report was talking of a "major deflationary head and shoulders top."

But the more fundamentally-oriented gold newsletters violently dissent. Australia's www.the-privateer.com noted darkly that headlines in the Financial Times about rising inflation fears at the end of the year were immediately followed by a wide and massive commodities sell-off. Yet the Bank of England in fact surprised by raising rates, shocking many optimists.

Bill Murphy of lemetropolecafé was (as usual) more blunt. He sees the sell-off as an officially orchestrated attempt to shift market sentiment toward financial assets. In his favor: Evidence that recent action involved speculative short-selling rather than liquidation.

January could still turn out to be a banner month for Murphy and gold. He's particularly interested in India, the world's largest gold importer. All this past week, he has been reporting stories and signs of very heavy Indian importing, which usually happens at lows for the price of gold.

Murphy consequently expects a rally. (Full disclosure: Data on Indian gold pricing used to be provided to the lemetropolecafé.com by my brother.)

In moments like this, it's worth checking www.the-privateer.com's massive long-term point-and-figure gold chart, congenially made available to the public for free on their site. Intentionally designed to factor out noise and focus on the long-term trend, this chart has changed direction twice in one week. That is very unusual. It is now bullish, and close to being very bullish.

Two more stray bullish facts: The Privateer's bi-monthly commentary, just published, notes that in December, for the first time, the value of euro bank notes in circulation surpassed that of the dollar. That sounds like an important milestone in a dollar-unfriendly road.

And other letters note that the Saudi stock market, which trades during the U.S. weekend, dropped 5% in the past two days, breaking support and closing at the lowest level since October 2004. Could the locals know that something nasty is going to happen in their region?

The Gartman Letter -- in a very unusual move -- overrode its $20 stop-loss, and after a white-knuckle week closed about flat on its gold. Could this well-informed observer also know -- or suspect -- something?

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at the
2007 Vancouver Resource Investment Conference
Vancouver Convention and Exhibition Centre
Sunday and Monday, January 21 and 22, 2007

http://www.cambridgeconferences.com/ch_jan2007.html

Admission is free for those who register in advance. The conference has arranged discount rates at the Pan Pacific Hotel adjacent to the convention center.

GATA will hold a reception at the conclusion of the conference: from 6 to 8 p.m. Monday, January 22, in the Cypress Suite at the Pan Pacific, 999 Canada Place. The Cypress Suite is on the hotel's restaurant level, one floor above the lobby. The reception will offer snacks, a cash bar, and some brief remarks by GATA's delegates to the conference, including Chairman Bill Murphy. There will be no admission charge for the reception but so that we might prepare better, if you plan to attend please let Secretary/Treasurer Chris Powell know by e-mail at CPowell@GATA.org.

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