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Peter Brimelow: Gold bugs digging out, again
By Peter Brimelow
MarketWatch.com
Thursday, March 8, 2012
http://www.marketwatch.com/story/gold-bugs-digging-out-again-2012-03-08
NEW YORK -- Last week was heartbreaking for the gold bugs, not for the first time. But they're digging out, again.
A week ago, on Feb. 28, gold, gold shares and silver all saw 2012 highs and appeared to be headed for dramatic chart breakouts.
But sudden, ferocious selling on Wednesday completely reversed this pleasant picture. CME April gold settling down $77.10, or 4.3%, and NYSE Arca Gold BUGS down 3.41%.
... Dispatch continues below ...
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Another bout of selling this Tuesday took gold and gold shares down even further. After a minor recovery on Wednesday, April gold was still down $104.70, or 5.84%, and the HUI down 8.31% from Feb. 28.
Such an abrupt and decisive shock did more than raise eyebrows. The Gold Anti-Trust Action Committee's "Daily Dispatches" email service (which has developed into an invaluable supplier of key stories on gold) was in its element.
GATA has been much derided for its view that the gold market is manipulated. Now it was able to report a whole procession of significant observers making unprecedented sympathetic noises.
Amongst the money management professionals: Jean-Marie Eveillard of First Eagle and Caesar Bryan of Gabelli. Even sweeter, one long-time vociferous skeptic, The Gartman Letter, was reported on Friday conceding:
"... We note something wholly out of the ordinary on our part: the prospects that something manipulative and perhaps even nefarious took place Wednesday in the gold market. The market's plunge may not have been solely the result of pure market forces, but may have been the result of a very real effort to 'manipulate' the market lower ... perhaps on orders of a central bank hoping to break the market in order to buy gold more cheaply after the surge of selling, or perhaps on the order of a government wishing to drive gold down for the 'optics' of weaker gold prices."
Intellectual triumphs have their place, of course. But they can be bankrupting.
The idea that central banks are determined to block gold crossing the $1,800 level it was approaching last week is deeply depressing to gold bugs, who have learned the hard way to respect the official sector.
And indeed investor confidence has collapsed. The Hulbert Gold Newsletter Sentiment Index, 50.9% on Feb. 28, dropped to 4.3% on Wednesday.
At the lows last December, it bottomed at 0.3%. MarketVane’s Bullish Consensus for gold, on Feb. 28 the highest since 2007 at 71%, fell to 62%. The late December low was 55%.
There are dissenters from the official-sector intervention thesis. The Got Gold Report on Sunday harshly ridiculed this view, with a detailed technical argument to the effect that "the bulls outran their supply lines, so to speak."
Also on Sunday, Financial Times writer John Dizard cited an analyst with the concept that gold and the Treasury "TIPS" (inflation-indexed) bonds are very closely linked. From this perspective, last Wednesday's action caused this observer to blame "a couple of clumsy hedge funds unloading excessively large positions."
The issue is important, because the buyer of last resort, the Eastern physical market, is starting to stir.
On Tuesday, bullion dealer Standard Bank remarked of its proprietary measure of demand: "Our Standard Bank Gold Physical Flow Index has pushed considerably higher this week so far (to levels last seen at the beginning of February), indicating that as a whole, physical market participants are net buyers and increasingly so."
On Wednesday, a correspondent at Le Metropole Cafe reported high premiums in both India and China, indicative of strong demand from those key consumers.
Important rallies can start from this posture -- if not capped by the official sector.
Wednesday night's GCRU report, downbeat on gold's near-term prospects, nevertheless concluded that "gold shares and the silver shares are at a good buying time versus the precious metals. Time to get ready!"
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