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Peter Brimelow: Indian brides confront gold bears again
By Peter Brimelow
Sunday, October 26, 2008
NEW YORK -- Are we reaching the bottom in gold? The radical gold bugs think so.
(Wow, writing about possible market bottoms is really unpopular right now. I got a whole lot of nasty comments on my recent suggestion that the stock market was getting into historic low territory.)
One technical reason the gold bugs cite: On Friday, cash gold had an "outside reversal day." That is, a lower low. but a higher high and a higher close than on Thursday.
That was unique among the commodities. Furthermore, gold managed to go up even though the S&P 500 Index was down 3%. That may be unprecedented.
Bill Murphy's Le Metropole Cafe is willing to call a low.
Traditionally, this site has laid heavy emphasis on the role of India, by far the world's largest bullion importer, judging the state of Indian demand by the premiums to world gold shown in the domestic Indian gold market. It's worked well in the post-2000 gold run-up and has even caught recent rallies.
Late last week, reported Indian premiums became huge. LeMetropoleCafe noted: "With the exception of the late August/early September period this year, premiums like this have never been seen since the Indian gold trade was liberalized in the late 1990s."
The Indian currency, the rupee, has slumped 10% this month. Le Metropole Cafe says that is why the premiums that appeared in late August at $800 did not reappear until gold reached the low $700s last week.
This past weekend, the indefatigable Murphy posted a couple of recent Indian newspaper stories documenting the recent demand surge for physical gold. His conclusion: "Unless the rupee collapses, pushing world gold down further will be extremely difficult."
Murphy has few companions. True, MarketVane's Bullish Consensus for gold slipped on Thursday to 52%, the lowest since early 2004 (It gained a point of Friday).
And the Olympian $US 5x3 Point and Figure chart, generously made available free to the public by Australia's The Privateer, turned positive, having bounced off a trend line:
Unfortunately, that trend line was part of a bear market channel that the Privateer was obliged to establish a couple of weeks ago. And the drop it reversed was the biggest shown on this chart, which goes back to 1982.
The Privateer's commentary raises an issue which has been intriguing, and frustrating, the gold bug community. It complains of "the huge 'shear' between the price of 'paper gold' on the futures markets and the almost total unavailability of physical gold in the REAL markets. Gold of any nature, whether bar or bullion or numismatic coin, is all but unavailable at ANY price and has been so for nearly three months now. And when it is available, the prices being asked by the sellers bear no resemblance to the prices being quoted in the futures markets. A cursory glance at the U.S. site eBay [where there's a secondary market in gold coins] will show this clearly."
Why is this occurring? Because the refineries cannot handle the conversion of central bank 400-ounce bars into the sizes and shapes the public buys fast enough to meet their demand.
Arguably, this physical offtake is countering the central banks' widely-rumored effort to break down the gold price by massive dumping, aimed at eliminating a symptom of financial system stress.
None of this will frighten the Indians. They buy gold because their brides wear gold jewelry.
But, India watchers say, Tuesday is the key Hindu festival of Diwali. India will be closed.
If paranoids have enemies, the bears will be prowling that day. But maybe not for long.
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