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Peter Brimelow: Even bullion bank UBS now hints that central banks torpedoed gold
The East Is Gold? Bugs Take Big Hit, but Asia Is Buying
By Peter Brimelow
MarketWatch.com
Monday, December 19, 2011
http://www.marketwatch.com/story/the-east-is-gold-2011-12-19
NEW YORK -- Last week was dreadful for the gold bugs. But Asia may be coming to their rescue.
Using the CME floor close for the most active contract (February), gold lost $122 (7.1%). At the low on Thursday, the loss was 9%.
The NYSE Arca Gold Bugs Index (HUI) closed the week down 9.1%. It is down 20% from the mid-September high. Most newsworthy of all, on Wednesday gold broke down through its 200-day moving average, provoking a remarkable range of funeral orations for gold’s bull market.
Arguably the most prominent of the mourners, the widely followed Gartman Letter, actually had a stop on its large gold position triggered very early on Monday morning, consequently avoiding most of the week's damage.
But by Tuesday, TGL was proclaiming: "Note also the chart of gold in U.S. dollar terms. ... We have the beginnings of a real bear market, and the death of a bull."
By Wednesday, Gartman was talking about shorting gold against the S&P 500 Index.
... Dispatch continues below ...
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There's wide agreement that gold's charts now do indeed look gruesome. The situation was well summarized on Friday by Pring.com's Weekly InfoMovie report: "Gold has now completed a massive head-and-shoulders top. The share ETF has also completed a smaller distribution pattern. ... Lower prices look likely in the next few weeks. For the record, the head-and-shoulder objective for the gold price calls for an eventual move to the $1,300 area."
But could this be excessive panic? GCRU, the short-term gold-trading service started by gold veteran Harry Schultz and now operated by the Aden Forecast, thinks so.
Very bravely, it issued a special alert on Thursday afternoon overriding its stops: "Our stop loss was triggered today on both gold and silver."
"DO NOT SELL. Instead, we recommend keeping your gold and silver positions. ... The markets are nearing a bottom, and now is not the time to sell."
Perhaps supporting this, MarketVane's Bullish Consensus for gold on Thursday fell to 58%. This may sound high, but in fact it is the lowest since December 2008. The lowest reading in that tumultuous year was 49% -- early last September, it was 88%.
Similarly, the weekly Bloomberg survey of gold traders on Friday had the lowest proportion of bulls since July 29 -- just before the powerful August rally.
Paradoxically, optimism is actually bolstered by the widespread suspicion that the slide was triggered by central bank selling -- a once-radical idea now so generally accepted that the bullion bank UBS, usually very circumspect about official-sector activity, felt able to say on Friday that "larger moves were also likely taking place behind the scenes, judging from the considerable market chatter about official liquidation."
The reasoning here: Once the abnormal, politically motivated selling ceases, gold will revert to a higher equilibrium.
But the most concrete reason for optimism emerged on Friday: It became apparent that the lows of Thursday had uncovered large Eastern physical demand.
UBS commented that "the physical market has now responded: Combined turnover on the [Shanghai Gold Exchange] this week has been consistently strong and is about 53% higher than the previous week's, while demand from India is shaping up to be the strongest weekly offtake since early October."
Over at LeMetropoleCafe, a correspondent reported very high local premiums for gold in the key gold-buying markets of China and India on Friday, suggesting strong local demand, and headlined: "Year-end gold menu: Bear Curry or Bear Chow Mein?"
If this international perspective proves correct, it will be a very big surprise to most U.S. observers.
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