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Peter Brimelow: Fed's flinch galvanizes gold

Section: Daily Dispatches

By Peter Brimelow
Sunday, June 29, 2008

The Fed flinch galvanizes gold, and the gold bugs think victory is at hand.

Comex August gold closed Friday at $931.30. Australia's The Privateer, adhering to a refreshing national tradition of blunt expression, wrote: "In what is an all but unprecedented event, gold has soared almost $50 straight up in the immediate aftermath of an FOMC meeting at which the Fed did what (almost) everybody expected them to do -- precisely nothing.

"But it was not the Fed's lack of action that galvanized financial markets, it was the amazingly fatuous 'reasons' they gave for their decision not to decide in the official press release. ... Then the stress really did make itself felt. ... Gold woke up with a vengeance. In short, everything that Mr. Bernanke and crew have been desperately seeking to avoid for months blew up in their faces at once. The signal could not have been clearer, and it was heeded. The Fed is helpless."

The Privateer's magnificent $US 5x3 long-term point-and-figure chart turned upward decisively:

Dan Norcini of Jim Sinclair's MineSet Website wrote on Thursday: "Boy howdy, did the market waste no time in letting Ben know what it thought about the recent FOMC statement! Gold began recovering from its yesterday-morning beating minutes after the FOMC statement hit the wire yesterday afternoon Bernanke's bluff has been called and the weakness of his hand revealed. ..." (See site:

Dow Theory Letters' Richard Russell added: "Gold began a vicious correction in early-March. The chart suggests that the correction is almost over. If August gold can close above 934, that should end the correction."

Physical offtake from India continues, according to Bill Murphy's, which judges by the Indian gold price's premiums to world gold that it calculates regularly.

Murphy's stable of writers regards this as critical. If India, far and away the largest bullion importer in the world, is willing to buy, then gold bears simply will not be able to make much downside progress.

There's a real juncture there. It's a generation since the financial community regarded the Fed with contempt. But memory (alas!) serves to say when the Fed is so regarded, as it was in the 1970s, there are dramatic consequences, especially for gold. Norcini remarked on Friday:

"This has the 'feel' of being the real deal. Inflation is becoming a serious threat."

Norcini, whose frequently acidic gold comment is usually posted within a few minutes of the Comex close, is reportedly a professional trader in other areas. Gold bugs take his comments very seriously.

Jim Sinclair, the proprietor of MineSet, has a history of brilliant business decisions in the gold area. Having recently resurfaced after many, many, years, he said on Friday: "The price of gold will find resistance at the high $950s and again at the major round number of $1,000. The opposition at the latter level will have more gusto.

"The second try on $1,000 will be followed by a modest reaction. After this reaction, a third attempt will see the price of gold burst upward through $1,000.

"The pull from the $1,200 magnet is irresistible and will be accomplished in 2008. All else is noise."

Nerdish note: I have always wondered about Ben Bernanke.
Years ago I read "Golden Fetters: The Gold Standard and the Great Depression 1919-1939" by Barry Eichengreen, a triumphalist celebration of the potential powers of the Federal Reserve. Prominent in its citations was the work of Ben Bernanke, then a graduate student.

But being a Fed groupie has its problems.

Arguably, the Fed has now frittered away the credibility it gained by being tough after 1980.

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