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Peter Brimelow: Halloween gold treat the result of a trick?

Section: Daily Dispatches

By Peter Brimelow
Wednesday, October 31, 2007

NEW YORK -- So stocks had a happy Halloween, but gold was going bump in the night.

Harry Schultz of the international Harry Schultz Letter linked the two explicitly Wednesday in his Gold Charts R Us service.

Recently, Schultz took the very unusual step (for him) of putting out a special email alert that was bearish both on the stock market and (short-term) gold and gold shares.

It didn't work. Shultz's explanation: "With a potential $2 trillion mountain of worthless derivatives/structured debt threatening to bring the financial system to its knees, it seems the powers that be have decided stock prices can't be allowed to fall in depth and at speeds that might shatter investor confidence."

It looks like some Schultz subscribers didn't appreciate his trading tactic, although he's been very open about his methods for years. He wrote defensively: "When we give profit-taking cues we don't guarantee that we will always be able to buy back at lower prices, but (as previously explained) we accept any losses and/or lost profits as an acceptable insurance premium against the risk of threatening and unknown downside."

Schultz's view now, expressed in point-and-figure chartspeak: "The long-term picture remains determinedly bullish and now reinforced via an explosive upside breakout from the May 2006 sym/triangle, with a December $888 upside measured target, though some hesitation is appearing around $800 round-number resistance. We personally covered our gold shorts/insurance policy with a loss (unhappy emoticon), and reversed to long on last Friday's surge break above Dec. 770, which was too forceful to ignore and continue to rebuild our long position with successive closes above 770."

Schultz's fellow octogenarian Richard Russell of Dow Theory Letters has a different point-and-figure target, but the direction is the same: "So far, everything looks 'good' for gold, with a point-and-figure upside 'count' of 930. Will gold ever get to 930? Why not? But it's going to take time. ..."
These are happy days for the gold bugs clustered around Bill Murphy's LeMetropole Cafe.

Or should be. Murphy wrote Wednesday night that the day's action "is bizarre and fully explains just how scared and desperate the PPT [Plunge Protection Team, the quasi-official body Murphy believes manipulates markets] is. ... In most free markets it's buy on the rumor and sell on the news. In rigged markets it's 'goose it further' because price action makes market commentary.

"So what if oil closes up $4.15 per barrel at $94.53 and the dollar sinks to 76.50, down another .23 and at another all-time low?!

"Regardless, this insanity of market pumping will work only for so long. Eventually the fundamentals of the real U.S. economy are going to overwhelm the PPT gang, and look out below."

Still, Murphy notes that "enthusiasm over gold among the U.S. investing public is tepid at best. The Cafe Sentiment Indicator has moved up only to a 5 of late (Wednesday at 3 p.m. ET), a far cry from the 8 and 9 reached during other substantial rallies."

This was just what Mark Hulbert found in his recent survey of investment letter opinion on gold.

Mark took that as a bullish sign.

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