Peter Brimelow: Gold bugs disappointed but keep the faith


By Peter Brimelow
Sunday, July 1, 2007

NEW YORK -- Gold disappointed its friends last week. But they've not given up.

The yellow metal not only failed to resume the previous week's breakout attempt on $660, but swooned badly on Tuesday, back to levels not seen since March. A painful struggle back left spot gold at $647.50, a $2.60 loss on the week.

I like to check The Gartman Letter, a well-connected institutional service with a decent record in timing gold buys. But it was stopped out of a long after only three days.

MarketVane's Bullish Consensus, a survey of futures trader sentiment, reported only 67% bulls on Tuesday, lowest since the January low just above $600.

Gold's feebleness jarred with what goldbugs angrily consoled themselves was a favorable news background: U.S. dollar weakness, reports of foreign central banks diversifying away from the U.S. unit, oil strength, sub-prime problems creating financial structure fears, bombs in Britain. But nothing heartened gold.

As I've reported earlier, there's a new, radical, Internet-based subset of goldbugs who directly argue that the gold market is manipulated by an alliance of public and private sector interests.

One of them, Australia's thoughtful gold webzine was in the bittersweet position of having predicted before last week's action: "We think that an upturn ... will probably be delayed until after next week for the simple reason that the Fed's FOMC meets next week (on June 28-29) to decide on US interest rates." (A surging gold price would have fed inflation fears.)

Privateer didn't seem consoled after last week's action. He wrote: "Marvelous, isn't it? The FOMC meeting this week was a "two-dayer" over June 27-28. June 26, the day before the meeting, the spot future Gold price duly lost $US 9.20 ... then dropped another $US 0.40 the next day to $US 641.70. By the end of the week, with the FOMC meeting safely "negotiated," the spot future price was back up to $US 650.90.

Privateer runs a mighty U.S. dollar 5x3 point and figure chart, which is designed to register really important turns. It did not register anything important last week. Privateer amiably makes this available to nonsubscribers:

And even the more radical goldbugs see reason for short-term optimism in the technical structure of the gold market.

On Saturday the "Trader Dan" commentary posted most days on veteran gold bug James Sinclair's MineSet Web site had a valuable insight based on his reading of the rather arcane commitment of traders data issued on Fridays by the Commodity Futures Trading Commission:

"Keep in the back of your mind that there are now a tremendous amount of speculators who are short this market below the $647 level. My guess is that these shorts are vulnerable on any move about the $658 level in August gold so watch for that. ... The combination of three things -- a gargantuan spreaders position, huge short covering by the bullion banks, and the period in which gold tends to make its seasonal low all point to a bottom in the gold market that is not far off, if it has not already occurred."

Trader Dan's conclusion: "If August gold takes out $660 on a closing pit session basis, speculative shorts will be in serious trouble and will begin their covering."

Next week in gold could be different.

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