Peter Brimelow: Gold down but radical bugs aren't out

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By Peter Brimelow
MarketWatch.com
Thursday, July 29, 2010

http://www.marketwatch.com/story/gold-down-but-radical-bugs-not-out-2010...

NEW YORK -- Gold is under the gun, but not for the first time. Amid general panic, the radical gold bugs remain confident.

The yellow metal has had a miserable July. Last week was the fifth consecutive week of declines, and the metal has not closed up in New York for two days in a row since late June. On Monday and Tuesday this week, the August gold contract plunged a total of $29.80 or 2.5% to a level not seen since late April.

Most observers are very negative. At JSMineset, "Trader Dan" Norcini gloomily noted on Tuesday evening: "Technically, the market fell out of its trading range that has been in place since May. ... Bears have now gained control over the market"

... Dispatch continues below ...



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The Aden Report declared in its weekly update Wednesday evening: "The gold price fell to a three-month low yesterday in both dollars and the euro. ... It's clearly in a D decline, and it's weak by staying below $1,200, basis December. If gold now stays below $1,180, it's very weak and it could test the $1,135 level. In a worst case, it could test its rising 65-week moving average, now at $1,080."

(But editors Mary Anne and Pamela bravely add: "If it does, it would provide an excellent buying area.")

The influential Gartman Letter, which had a very profitable position in gold hedged into foreign currencies plunge into losses early this month, and which is now down to a minimal gold holding, was actually talking about shorting gold on Wednesday morning:

"Were we forced to take a trading position we'd sell gold short, for the longs now have several months of strong overhead resistance to overcome before they regain the upper hand. That may well take weeks, if not months, to accomplish, and we've other markets far more interesting to involve ourselves in."

(Paradoxically, this will cheer up many in the pro-gold camp. They maintain that the Gartman Letter is a reliable reverse indicator in gold -- certainly unfair.)

Another source of comfort stems from the sentiment surveys. MarketVane's Bullish Consensus is back down to 61% Bulls. On July 19 it fell to 60% (and gold then staged a modest rally). Lower readings were last seen at the height of the crisis in December 2008. The Hulbert Gold Newsletter Sentiment Index is at 9.2%, which is its low for the year.

As so often on a sell-off, the main gathering of optimists is to be found at Bill Murphy's LeMetropole Cafe Web site. This is because Murphy and his faction of what I call "radical gold bugs" place great faith in the ability of the physical gold market to handle selling bouts.

Murphy commented on Wednesday: "As long as the physical market holds up, it is only a matter of time before gold and silver go back up and make new highs for their moves. This pattern of correcting and then making new highs has been so pronounced for so long, the public now 'gets it' and is taking advantage of breaks such as this one."

One LeMetropole Cafe correspondent reports signs of strong demand by the Swiss refiners, generally the source of the small bars bought in the East.

Another LeMetropole Café veteran, recording that gold has moved to high premiums in key markets such as India, Vietnam China and Turkey -- indicating local demand -- headed his Wednesday contribution "Back Up Truck."

At least that's clear enough!

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