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Foreign governments sell U.S. bonds as Caribbean ''banks'' buy
By Peter Brimelow
CBSMarketWatch.com
Monday, May 15, 2006
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B41604753%
2D25CC%2D45E0%2D956C%2DF51CE72E052D%7D&siteid=mktw&dist=
NEW YORK -- Another week, another gold column ...with the same
message: it's a bull market.
On May 8, I noted the previous Friday's close was some $30 above the
level of the previous week - this past week's rise was $27.50.
These levels have not been seen since 1980, and an ascent of this
ferocity has not been seen since 1979. Embarrassingly, I remember
those days. Few do.
The net effect of this past week's advance is well demonstrated by
the authoritative chart made available to the public by Australia's
The Privateer. This rose three points during the week and was not
moved by Friday's downswing. See:
http://www.the-privateer.com/chart/gold-pf.html
What is going on? Why? And how do investors deal with it?
I like to defer to observers with even longer memories that mine. On
Friday, Dow Theory Letters' Richard Russell said: "... Gold is now
in one of the most powerful bull markets that I've ever seen, and
I've seen a lot of bull markets in my 81 years. This gold bull
market far surpasses in strength the gold bull market of the 1970s.
This bull market is far bigger, it's far more international, and it
has much stronger and broader fundamentals than did the bull market
of the '70s."
Why? Russell and others say that increases of these proportions --
on comparatively light Comex volume, and with speculator involvement
as measured by the Comex open interest actually going down - scream
a short squeeze
This is exactly what Bill Murphy of the online service
www.lemetropolecafe.com has been predicting for several years and is
now gleefully proclaiming. For the first time this week his views
were reported in the New York Times and The Wall Street Journal.
Some observers reflexively presume that this means the action will
soon be over.
Russell I think once again gives invaluable perspective. On
Wednesday he wrote: "I do think at least part of the rise in gold
(and silver) could be coming from short covering...but why are these
shorts covering? Why can't they just sit tight and wait for
weakness?
" Ah, the answer is that the fundamentals are in favor of the ...
the primary trend of the precious metals has turned bullish.
Shorting against the primary trend of any item is a ticket to
disaster. ... The precious metals short sellers are aligned AGAINST
the primary trend. That's why they can't sit. That's why they are
being forced to cover.
"Thus the shorts in gold and silver are trapped, and it's just a
matter of how or which way they are forced to cover. Yes, the
primary trend is subject to corrections, but in bull markets the
corrections are always temporary, and in due time the items advance
to new highs."
This makes sense. A short squeeze, like a pair of scissors, has two
components. In any market, professional traders occasionally trap
one another, settle, and move on. But if the buying stems from what
Russell calls "primary" causes (Iran fears, for example?) the shorts
have a serious problem.
So far the gold shares agree with the skeptics. As Martin Pring
noted in his Weekly InterMarket Update, "On Thursday the Gold Bugs
Gold Share Index experienced an outside day. Normally such an event,
especially when associated with an extremely overbought condition,
would cause us to become concerned."
And indeed, gold shares did plunge on Friday, ending down on the
week down -- the XAU and HUI indices by 2.4% and 3% respectively.
Resolving this may establish which market has the more global
perspective: gold or North American-traded gold shares?
Richard Russell's views have my vote.
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Ted Butler silver commentary archive:
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