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Peter Brimelow: Goldman guts gold but bugs still calm

Section: Daily Dispatches

By Peter Brimelow
Monday, April 19, 2010

NEW YORK -- Gold's freaky Friday has a lot of commentators puzzled. But not the radical gold bugs -- my name for the "bug" subset who have long argued that the gold market is manipulated.

I reported last week that the radical bugs suspected that their traditional enemy, the Large Unknown New York Seller, had returned.

After gold spent last week ineffectually trying to advance above the previous week's 2010 closing high, the Seller sent it reeling mid-morning Friday, down $25 in a few minutes. The Nyse Arca Gold Bugs (HUI) lost 4.4%.

The immediate cause of Friday's air pocket: news of SEC civil fraud charges against Goldman Sachs.

... Dispatch continues below ...


Prophecy Resource Corp. Appoints Rob McEwen to Advisory Board

Prophecy Resource Corp. (TSX.V: PCY, OTC: PCYRF) is pleased to announce the appointment of Rob McEwen to the company's Advisory Board. McEwen is a leading Canadian mining industry entrepreneur. He is the chairman and CEO of U.S. Gold Corp. and Minera Andes Inc. McEwen was the founder and former chairman and CEO of Goldcorp Inc., whose Red Lake Mine in northwestern Ontario, Canada, is considered to be the richest gold mine in the world. During his tenure at Goldcorp, McEwen transformed the company from a collection of small companies into a mining powerhouse, growing its market capitalization from $50 million to approximately $8 billion.

For Prophecy Resource Corp.'s complete statement:

Since gold is supposed to be a hedge against financial-sector risk, traditional gold bugs find this action outrageously counterintuitive and absurd.

But radical gold bugs, cynical charter members of the Goldman Sachs unfan club, are not puzzled.

As a writer on Bill Murphy's Lemetropolecafe site put it:

"Guess what gold did this morning the second this INCREDIBLY GOLD BULLISH NEWS about Goldman Sachs came out?"

"Yep, it soared."

"No, wait, sorry, it plummeted $30 in MINUTES. ... The Cartel made sure that the traditional safe haven asset was not turned to in times of crisis ... making sure that a sheer tsunami of unbacked (naked short) paper contracts were thrown at gold and silver instantly."

"The Cartel" is of course the radical bugs' synonym for the syndicate of financial intermediaries that they allege conspire to manage the gold price.

And allegations of conspiracy are of course the substance of the SEC's complaint against Goldman Sachs. The concept is becoming mainstream. Hmmm.

As it happens, the technical damage done to gold on Friday does not impress some chart readers.

Dow Theory Letters' Richard Russell shrugged it off: "The daily chart of gold ... shows a head-and-shoulders bottom. More recently, an upside breakout from the pattern. Today we have a pullback to the breakout or resistance ... line. If gold can hold at 1,100 or above, it will be impressive."

Even the much-more-nervous Dan Norcini at found some comfort: "Price collapsed down past the initial support line ... before finding some buying at the second level near $1,130. This level is strong support, and the fact that it held is encouraging."

But the new conventional Wall Street bear case against gold -- that now only the U.S. dollar is a hedge against financial-system risk -- was expressed with uncharacteristic forcefulness by the HSBC gold analyst on Friday:

"Further bullion liquidation likely as risk sentiment may drop more in the wake of the Goldman news. In the near term, we expect the developments surrounding Goldman to overshadow all other issues that previously dominated gold trading. Near-term market sentiment looks bearish, and further losses are likely, in our opinion."

Contradicting this are a series of interesting posts by dot-com litigation veteran Henry Blodgett on his Business Insider Web site. Blodgett thinks that Goldman will make the SEC threat go away inexpensively (by Goldman standards).

If true, of course, this means the new conventional Wall Street risk-aversion gold-bearish thesis is null in this case.

Or there's Lemetropolecafe's long-standing benchmark, Indian gold-market premiums.

The concept is that India and the Eastern physical market generally are little influenced by Wall Street concerns, but are responsive to lower prices. India is the world's largest gold importer. Indians actually consume gold, as jewelry for brides. And they were importing Friday morning -- even before gold's down gap.

After the Goldman news, Lemetropolecafe drily predicted: "Indians toast Goldman Sachs."

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Preliminary Feasibility Study Completed for Seabridge Gold's KSM Project

Study Reports Reserves of 30.2 Million Oz. Gold, 7 Billion Lbs. Copper,
133 Million Oz Silver, 210 Million Lbs. Molybdenum

Base Case Life of Mine Cash Operating Costs Estimated at $144/oz. Gold Produced
(Net of Base Metal Credits)

Toronto -- Seabridge Gold Inc. has announced results from a National Instrument 43-101 compliant preliminary feasibility study of its 100-percent owned KSM project in northern British Columbia, Canada. The study was prepared by Wardrop, a Tetra Tech company, a major international engineering and consulting firm.

Seabridge President and CEO Rudi Fronk says, "The study confirms that the KSM project now hosts the largest gold reserve in Canada and one of the largest in the world. KSM is projected to provide an extraordinary mine life of more than 35 years with estimated cash operating costs well below the current average of the major gold producers. Estimated capital costs are in line with those of comparable, large-scale, undeveloped gold-copper projects and KSM has the advantage of being located in a low-risk jurisdiction."

For the complete Seabridge Gold statement: