Peter Brimelow: Gold bugs brace amid retest of $1,000 level


By Peter Brimelow
Monday, September 7, 2009

NEW YORK -- Gold seems poised to break $1,000 again, again, again. But the battered bugs are wary, at least short-term.

On Friday, spot gold closed at $994.50, up some $50 on the week.

All the usual elements are in place. The charts are looking good. Dow Theory Letters' Richard Russell said on Friday: "Gold has just undergone a huge upside breakout. After a $40 rise in two days, gold needs to correct, which it's doing today. On the point-and-figure chart, the next upside target is the $1,000 box. Above $1,000, I think gold could go for a record-high price above $1,005."

The Australian service The Privateer makes its trademark US$ 5x3 Point and Figure chart available free. It presents a beautiful technical picture:

Earlier last week, using a different charting approach,'s Martin Pring said of the gold chart: "A head-and-shoulders that does not work is usually followed by a strong rally, and that would initially be signaled with a break above $95 for SPDR Gold Trust ETF."

Which duly occurred -- SPDR Gold Trust closed at $97.53 on Friday.

Even sentiment looks supportive. The Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold market exposure among a subset of short-term gold timing services tracked by the Hulbert Financial Digest, was unchanged at 25.2 percent. This is important because, as Mark Hulbert pointed out Friday morning, the HGNSI is "nowhere close to this sentiment index's record high of 90 percent."

Hulbert said: "The HGNSI hasn't budged over the last couple of days, despite bullion's rally. ... That is quite unusual." Indeed, the HGNSI saw peaks of 64.3 and 60.9 percent at gold's highs earlier this year.

MarketVane's Bullish Consensus has been a bit more responsive to gold's gains. But Friday's close, up 2 points at 85 percent, is still a point below February's high. In a serious bull run for gold, this indicator usually spends a number of days in the 90s.

Bill Murphy at LeMetropolecafe notes: "The Cafe Sentiment Indicator has suddenly moved up off the floor, but only to about a 3, out of a 1 to 10 range. The last time gold screamed like this, it was a 9 and then a 10. The public is still not there ... not even close."

The Gartman Letter remarked Thursday on the lack of media interview requests editor Dennis Gartman has had during this run.

Naturally, all of this is encouraging from a contrarian opinion standpoint.

But the gold bugs, already toughened by years in the wilderness, know all too well that things have looked good for a $1,000 breakthrough several times before this year.

And there is no doubt that the hard-core bugs are apprehensive.

One concern: While LeMetropoleCafe's Murphy is characteristically cheerful, his trademark Indian premium data suggests that the Indian importers are inactive at these prices.

More significantly, bitter experience causes the bugs to believe that the gold price is managed.

Australia's The Privateer, although its famous chart is bullish, says bluntly: "Don't forget, there is a G-20 finance ministers' meeting going on this weekend in London to prepare for the heads of state meeting coming up late this month in Pittsburgh. A soaring gold price is NOT a part of the agenda that those meeting in London would feel very comfortable with."

Long-term, the gold bugs are confident because they know markets can't be manipulated forever. Short-term, they're not so sure.

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