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Ted Butler: Precious metals ETFs may be just more manipulation

Section: Daily Dispatches

NY Gold Closes at 11-day High, Boosted by Oil

From Reuters
Tuesday, February 21, 2006

NEW YORK -- U.S. gold futures rose and settled at an 11-day high
Tuesday, as overnight strength in spot gold and firm oil prices
sparked speculative buying to extend gains from Monday, when U.S.
markets were on holiday. Investors played catch-up with bullion in a
recovery from last week's five-week lows as crude rose a dollar
after militant attacks shut in a fifth of Nigeria's oil supply.

Dealers said gold's bounce above short-term technical resistance
over the weekend attracted investment funds back to the precious

"The market keeps bouncing back and, once we climbed back above
$550, more investors came back in," said George Gero, vice president
at RBC Capital Markets Global Futures.

"Once again, after all the selling by the funds last week, it seems
they thought that buying the dip was the best thing," he said.

Gold for April delivery was up $2 at $556.60 an ounce on the New
York Mercantile Exchange's COMEX division, after trading from
$553.10 to $559.50, which marked its highest price since Feb. 10.

Futures opened higher after spot gold rose Monday on physical buying
and then held steady on Tuesday.

Oil rose back above $61 a barrel Tuesday after militants in Nigeria
shut in a large part of the country's output by attacking a key
tanker terminal and blowing up a pipeline over the weekend.

Rising oil usually boosts gold as investors are attracted into
commodities in general and as a number of traders turn to gold as a
hedge against inflation.

Dennis Gartman, author of The Gartman Letter, said gold was looking
firmer on the Nigeria unrest as well as expectations that Asian
central banks likely will be topping up the gold in their reserves
in 2006 and 2007.

"Seeing that their reserve holdings of gold are inordinately low
when compared to the gold holdings by the legacy central banks of
Europe, the People's Bank of China, the Reserve Bank of India, the
Central Bank of Russia, the Bank Negara (of Malaysia), et al. are
quietly on the bid for gold," he said.

Gartman said concerns over the U.S. dollar and fears of inflationary
pressures were less of a factor for gold currently.

Analysts said ongoing tensions over Iran's nuclear ambitions buoyed
gold as well. Iran showed few signs on Tuesday that it was ready to
strike a deal with Russia that could allay fears it wants nuclear
arms and avert possible U.N. sanctions.

Dealers said that if gold holds firmly above the $550 area this
week, it could retest levels nearer to $570.

On Monday, spot gold hit a 1-1/2-week high at $556.50 but still held
below the 25-year peak hit on Feb. 2 at $574.60.

Spot gold was last quoted at $554.70/555.40 an ounce, compared with
Monday's late London quote at $555.60/6.50. Tuesday's afternoon fix
in London by bullion dealers was at $554.

COMEX gold futures spiked to $579.50 on Feb. 2 -- its highest mark
since January 1981 -- on strong investment demand carrying over from
gold's 18 percent rise in 2005.

According to the latest weekly Commitments of Traders data from the
U.S. Commodity Futures Trading Commission, the speculative long
position in COMEX gold futures fell to 118,914 lots as of Feb. 14,
from 127,349 lots on Feb. 7.

Even though funds' holdings in gold have decreased for several
months running now, prices have remained buoyant amid steady inflows
into gold exchange-traded funds, said one precious metals analyst.

HSBC's Alan Williamson said total gold holdings at the five ETFs
have risen from under 9 million ounces in September to current
levels of 14.9 million ounces, though inflows have almost dried up
in the last two weeks.

In the CFTC data, small speculators increased their long stance in
gold and the commercial position stayed heavily net short.

The dollar rose Tuesday as currency investors braced for minutes
from the Jan. 31 Federal Reserve's policy-setting meeting, and for
inflation data on Wednesday, for hints on how much higher U.S.
interest rates may climb.

COMEX March silver gained 12.5 cents to end at $9.545 an ounce, also
striking a two-week high in a range from $9.40 to $9.575.

In late January, futures almost pierced the $10 level when silver
shot to a 22-year high in a broad precious rally.

Spot silver inched up to $9.56/9.59 an ounce from $9.50/53
previously. The London fix was at $9.49.

NYMEX April platinum rose $23.50 to $1,034.50 an ounce. Spot was
worth $1,027/1,031.

March palladium rose $5.25 to close at $294 an ounce. Spot palladium
touched $290/294.


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