Peter Brimelow: Gold bugs say it's not over

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By Peter Brimelow
MarketWatch.com
Monday, November 16, 2009

http://www.marketwatch.com/story/gold-bugs-say-its-not-over-2009-11-16

NEW YORK -- Gold grinds to new highs -- but the gold bugs are still optimistic.

On Friday evening, Australia's The Privateer headlined the link to its (free) long-term $US Gold 5 x 3 Point and Figure chart: "Latest update November 13, 2009 -- Gold closes above $US 1115.00 -- new all time high." See gold chart:

http://www.the-privateer.com/chart/gold-pf.html

And very handsome it looks too. Significantly, the uptrend line which marked the top of gold's run in March, 2008 is still safely far away.

Gold bugs are particularly excited because, since the beginning of September, gold has also been rising in other currencies -- not as much, but quite significantly. This is now very easy to follow because the U.K. coin dealer Kitco makes available free charts comparing $US gold to gold expressed in the US Dollar Index Future, a six-currency basket excluding the dollar. This enabled Kitco to say after Friday's close that the $16.20 gain seen in their day was $5.90 due to $US weakness and $10.30 due to a rise in non-dollar terms.

What happens next?

Peter Eliades of Stockmarket Cycles is unhappy, noting on Saturday morning:

"Gold has had an upside projection to between $1,111-$1,131 for several months and has now moved well into that projection window. That suggests it could be reaching a top here. As we noted yesterday, however, the Fidelity Select Gold Fund has an equivalent upside projection between 52.17-56.40 and the CBOE gold index GOX has an equivalent projection to between 241.45-256.40. Unfortunately, those two projections do not align with the projections for the metal itself."

The issue which bothers Eliades is that gold shares lag far behind (GOX is an equity composite). The major gold share indices were higher in early 2007 -- gold is up over 60%! To some observers, this is very ominous.

But The Privateer argues that this past correction in gold, from mid-March 2008 to late September 2009, "was longer lasting and deeper than its predecessor. So far, Gold has only broken out of that correction for six weeks. After Gold broke out of the first correction in Mid September 2007, it roared higher for the next six MONTHS."

This gives The Privateer confidence.

The LeMetropoleCafe, as usual, relies heavily on what local gold premiums say about physical market conditions:

"The first thing to be stressed is that the physical market is in a profoundly different posture than in Q1 2009. Then regular buyers like Turkey, Vietnam and even India were exporting. Now to varying degrees they are buyers. ... India's return to the bid because of the rupee move noted here on Friday may have been decisive in the NY session's Bear rout, and of course Vietnam premiums as last reported over $30 are crying out for gold supplies."

Le MetropoleCafe maintains Vietnam now imports a similar amount of gold to China.

The Aden Forecast this weekend came up with a powerful variant of this argument. It deployed a chart of the "Monthly Average Annualized Increase in Gold 2001-8" which clearly shows that November, December, and January have emerged as very buoyant months -- November and January averaging over 30% and December just under 30% (annualized, remember).

This fits in with the LeMetropoleCafe theory -- it's the annual Indian wedding season. That's a tough pattern to break.

The Aden Forecast suggests that gold could reach $1,200 on this move, and that the gold bull market could continue for seven to eight years.

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