Peter Brimelow: Gold's on a roll -- again


By Peter Brimelow
Monday, September 10, 2007

NEW YORK -- Gold on a roll again. Again. Again. But look what happened last time I said that.

"Gold to test $720?" I wrote innocently July 23, reporting on a week of spectacular performance by gold and gold shares that got gold to $683 and experienced observers all excited.

The roof promptly fell in. Massive selling loudly attributed by conspiracy-minded gold bugs like Metropole Cafe's Bill Murphy to malign manipulating central banks Gold ended the following week down $20.

Well, here we are again. Gold rose $27.40 in New York in the past week. It closed above $700 on Friday for the first time since May 2006. Gold shares were also strong, although unlike gold they did not surpass their July highs. (But this time, of course, the sinking stock market supplied quite an undertow.)

Result: The Australian service The Privateer's $US 5X3 Point and Figure chart widely viewed as the most efficient strategic insight into the gold market looks even more bullish than in July.

Chartists are impressed. Martin Pring concludes in his weekly comment: "Gold has broken out to the upside."

Pring is heavily influenced by gold share performance and was distressed the summer selloff. But even though the share action the past week was comparatively subdued, it convinced him that the damage of July/August has been repaired. He wrote: "For some time, the Gold Bugs Gold Share Index has been in this trading range. ... The shares are not only back in the range, but challenging the higher end. Gold itself looks as though it has started a new bull market upleg."

Of course, the gold bugs are particularly confident because they see plentiful evidence of financial system stress. The Privateer cheerfully remarks, speaking of the global credit crunch: "With the financial fabric having been torn apart, it will take a long time, months or even years, for it to be rebuilt."

They have support. I note Dow Theory Letter's Richard Russell led off his Friday comments with a statement of fundamentalist gold sympathy: "The latest is that yesterday December gold (this is the active month) finally closed above the psychological 700 mark. Now it only remains for gold to advance to a new high above the 2006 high of 728. ... Classic paintings, gem stones, diamonds, collectibles, seaside real estate, and gold are rising steadily in terms of paper. The incredible fraud of fiat currency goes on and on. It will continue on until well, until it morphs into dreaded hyper-inflation."

From a narrowly technical point of view, gold's friends are encouraged by the apparently low level of Western speculator involvement. The commentator who writes for Jim Sinclair's Web site under the name "Trader Dan" writes: "Looking at the peaks made in fund long exposure, it is evident that they are no where near being maxed out in their exposure to this market."

MarketVane's Bullish Consensus for gold on Friday rose a point to 81%, the highest this year. A contrary opinion warning, perhaps -- but when gold peaked in May 2006 it spent two weeks even higher, in the 90s.

And LeMetropole's Murphy reports his site's particular interest, Indian and Middle Eastern physical demand for gold, remains very strong. Murphy concluded on Friday "Our time has come!"

Yeah, well, after July's experience, I might like to wait a week. But gold apparently deserves attention. Again ... again.

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