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Peter Brimelow: Mysterious movement in gold market

Section: Daily Dispatches

By Peter Brimelow
Monday, March 5, 2007

NEW YORK -- Gold had a tough time in the past week too.

No stock market enthusiasts will have any sympathy, but gold's friends are aggrieved. A week ago gold bullion closed at a 2007 high, and early this past week made highs in several major currencies, a favored sign of bulls. But furious selling, starting rather strangely in the thin aftermarket after Tuesday's close in New York, ultimately sent the metal reeling to a $39 per-ounce loss on the week.

Not all gold observers were caught.'s Martin Pring, who places great faith in the predicative power of gold equities, was worrying in his Weekly InfoMovie Report about their nonconfirmation of the metal. And several old hands were suspicious about the ballooning "open interest" in gold on the New York Commodity Exchange. In essence, this is a measure of the size of the bet laid down by speculators in gold futures. Seeing it pass 2005's record high without a new high in gold set off alarm bells.

How big was the seller?

The Gartman Letter, which for a loudly self-proclaimed non-membership in the gold fraternity spends a lot of time thinking about the metal and is actually quite a successful trader of it got the message on Thursday morning: "We find it disconcerting that spot gold has seemingly badly failed in the past two or three days to push upward through $685-690. Whoever, or whatever, the seller is at that level, it has been formidable indeed."

The Gartman Letter acted, halving its quite substantial holding and converting the rest into a long-gold, short-Nasdaq spread, consequently avoiding two-thirds of the week's loss.

The size of the blocking operation which stopped gold imitating oil this past week in making and holding new 2007 highs, perhaps paradoxically, encourages the considerable school of gold followers who believe gold is subject to heavy but surreptitious manipulation by the authorities. This is because of their theory of the mechanism involved.

As one of their leaders,'s James Turk, says in the new edition of his Free Market Gold & Money newsletter: "As gold climbed in price, we witnessed in recent weeks the huge buildup of open interest on the Comex. The gold cartel ... was selling whatever ... it felt... needed to try slowing and then capping gold's advance ... the gold cartel finally succeeded in capping gold. ... Fortunately, there was no serious long-term technical damage to gold's chart -- nor do I expect any in the days and weeks ahead. Any reversal of gold's major uptrend is unlikely because the gold cartel is already covering short positions at these prices, which will provide underlying support for gold."

This concept that the "enemy" trades around the gold price, and are not just constant sellers, is a sophisticated point that open interest behavior in the past can be interpreted to support.

Others, of course, presume that gold was just caught in the general stampede for cash. This must be true to some degree, but the latest open interest data (Thursday evening's, with half the week's losses booked) do not really show it.

Gold, of course, is not just part of the spectrum of financial assets seen from the West. It is also of great interest to the Indian population, easily the world's biggest buyer of physical gold. Over at, Bill Murphy is expecting the Indians will step in and stop the slide. His proprietary Indian premium numbers (full disclosure: Once provided by my brother John) have not so far shown this is happening. But after Friday's losses perhaps they will.

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