Mark Hulbert blames bugs, not central banks, for gold's struggle


7:58p ET Tuesday, February 20, 2007

Dear Friend of GATA and Gold:

Today's commentary about gold by Mark Hulbert, editor of the Hulbert Financial Digest, blaming gold's inability to crack $670 on the over-exuberance of its advocates, could be so smug only because its author has never bothered to examine a few crucial things -- like the speech given in June 2005 by William R. White, head of the monetary and economic department of the Bank for International Settlements.

White declared that a primary purpose of international central bank cooperation is to suppress the price of gold:

In his commentary today Hulbert acknowledged hearing of complaints that the gold market is tampered with but he blithely dismissed them as mere conspiracy theory.

By the way, Mark Gilbert, the Bloomberg News Service columnist who a week ago sneered at suggestions that the gold market is manipulated (, did not acknowledge the cordial letter sent to him by GATA immediately afterward, in which several of the official admissions of the gold price suppression scheme were specified for him, complete with source citations.

People are being served terribly by what calls itself journalism. When they get hurt because of this, let it be noted again that Hulburt and Gilbert were among those who refused the chance to protect their readers.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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What's Holding Gold Back?

By Mark Hulbert
via Dow Jones News Service
Tuesday, February 20, 2007

ANNANDALE, Va. -- The gold bugs have been frustrated now for the better part of a year. Despite mounting evidence that inflation is only going to get worse, gold is lower today than where it stood in May, nine months ago.

What's going on?

Perhaps not surprisingly, the frustration has provided fertile ground for any of a number of conspiracy theories, as Richard Russell, editor of Dow Theory Letters, explained over the weekend: "Someone or somebody is selling gold at the 670 level, and that someone or somebody doesn't want gold higher than 670. I don't know whether the seller is a government, a hedge fund, or it may simply be speculators who are short -- I don't know. But to me it's obvious that there's a campaign going on with the object of halting gold at 670."

Of course, just as paranoids sometimes have enemies, conspiracies sometimes do exist. But, in this case at least, there is a simpler explanation for what has been holding gold bullion back in recent weeks: The gold bugs became too excited too quickly, which is bearish from the point of view of contrarian analysis.

At first blush, contrarian analysis can also look like a conspiracy theory. Why should the markets be so ornery as to regularly do the opposite of what the majority is expecting?

But, upon further reflection, there is nothing mysterious about why contrarian analysis works: When bullishness is at or near extremes, little cash remains on the sidelines that could be invested in the future and propel the market even further. And when bearishness is widespread, those investors who are going to be persuaded away from holding for the long term probably have already sold -- thus removing any additional selling pressure.

To see why contrarian analysis helps us understand what's going on currently in the gold market, consider the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average gold market exposure among a subset of gold timing newsletters tracked by the Hulbert Financial Digest. As of Friday night, the HGNSI stood at 75 percent, near the high end of its historical range that extends from minus 31.3 percent on the low end and 89.6 percent on the high end. (Negative HGNSI levels means that the average gold timing newsletter is recommending that its subscribers be short the gold market.)

The current reading means that almost all of the gold timing newsletters that are not bearish stopped clocks have already turned bullish.

That's another way of saying that the gold market already discounts a heck of a lot of bullish news. In order for gold to continue going up, the news needs not only to be good, but to be even better than expected. That's why gold can be a net loser even while news on the inflation front is showing inflation to be heating up.

Insofar as this contrarian analysis is on target, it means that the most bullish thing for the gold market right now would be for a significant proportion of the gold timers to conclude that the bull market, if not over, has entered in an extended hibernation. This turn away from bullishness could happen in any of a number of ways: It could come in the wake of a serious correction in the gold market, for example; alternately, it could be caused by frustration that gradually mounts as gold is unable to convincingly break above its recent trading range.

But regardless of how exuberance wanes among the gold timers, contrarians believe that it must happen before a sustained up-move in the gold market becomes an intelligent bet.

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