Peter Brimelow: Is India clearing way for gold 'moonshot'?


By Peter Brimelow
Thursday, November 5, 2009

NEW YORK -- Does India like gold, or dislike Washington's anti-gold dollar domination?

Let Mary Anne and Pamela Aden tell the story. Their Aden Forecast first came to fame in the great gold bull market 30 years ago. The Adens are careful and adroit traders, and have a strong track record according to Hulbert Financial Digest, but they were speculating that gold might ultimately reach $5,800 when I last looked.

Last night they wrote in a hotline: "Gold is the big news this week. It hit another new record high today, quickly closing in on the $1,100 level. This followed yesterday's $31 jump, which clearly propelled gold well above its previous high. The news that India bought 200 tons of the [International Monetary Fund's] gold (half of what it's planning to sell) at these high prices, and in one fell swoop, was incredibly bullish. It was viewed as a strong sign that gold is not too expensive and the Indians, who have a long gold history, obviously believe it's going high."

The Adens conclude: "Our next target for gold at $1,200 is looking more realistic."

The Adens are chartists, and their rationalizations for what they see in their chart patterns are designedly an afterthought. Still, this rationalization is distinctly 1980-ish. There's a newer group I call the "radical gold bugs," gathered around Bill Murphy's Le Metropole Cafe subscription Web site, who have a distinctly different take, based on a close study of market conditions.

Murphy has long maintained, often in blistering terms, that what he calls a "moonshot" in gold's price is being frustrated by an alliance of government agencies trying to sustain a financial bubble and their chosen instruments in the private sector. In other words, the radical gold bugs were Goldman Sachs conspiracy theorists long before everyone else was.

India has long played an important role in the radical bugs' thinking because they regard Indian consumer offtake as a critical factor in the gold price. But they view the Indian central bank's recent gold purchase, not so much a play on the price, as a sign that the gold-hostile U.S. Treasury is losing its grip.

Murphy wrote this week: "The fact that a central bank has in fact stepped in to take the gold is likely to greatly excite those who have been predicting such an event."

He continues: "They are probably right to be excited. Notwithstanding the Indian population's interest in gold, the economic authorities there have traditionally been rather disdainful of the metal. For many years, it has been clear that Washington has been strongly opposed to central bank interest in gold, out of jealousy for the U.S. dollar. That India feels able to defy American preferences in this way is an ominous sign for the dollar hegemony."

In the radical bugs' view, this means the main obstacle to the gold's "moonshot" is breaking down.

Last, a proprietary word: Mark Hulbert wrote before Wednesday's action that the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold market exposure among a subset of short-term gold timing newsletters tracked by the Hulbert Financial Digest, stood at 53.8%.

This is below the record level of 89.6%, but getting into the 55%-65% range that gold has topped out at more recently. Somewhat confused contrary opinion conclusion: gold's "Wall of Worry" was weakening, but still intact.

After Wednesday's strong close, the HGNSI came in unchanged, at 53.8%

Whatever India thinks, for American investment letters, gold's Wall of Worry is still there.

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