Peter Brimelow: Indians back buying gold

LeMetropole Cafe Talks Up
Market-Manipulation Theories

By Peter Brimelow
CBSMarketWatch.com
Thursday, October 12, 2006

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BCABF2A81%2D2106...

The Hulbert Gold Newsletter Sentiment Index, which represents the average gold market exposure among a subset of short-term gold-timing newsletters, stood at a reading of minus 25% on Wednesday night. That's not far off the all-time low, and it's a dramatic change from the stubborn bullishness that gold-timers displayed when the current downleg began, in September.

At that time, with gold well over $600 an ounce, gold timers were 62.5% exposed. Mark Hulbert regards this as good for gold, finally, from a contrarian point of view.

Veteran gold bugs are an extremely tough lot. Harry Schultz, he of the the International Harry Schultz Letter, has repeatedly said that the gold price could break by 30%, or even 50%, and still be in a primary bull market.

And as we noted a year ago, the Dow Theory Letter's Richard Russell has pointed out that they've seen it all before, in the great gold bull market of the 1970s.

But they naturally breathe easier when someone offers up a reason to be bullish.

Ironically, despite my trumpeting the virtues of the "geezers" (those letter writers who saw the last major market turn -- 1974 for stocks, 1980 for gold), one of the most interesting rationales for gold is provided by a letter that's so new that it doesn't even come in old-fashioned paper form.

No, LeMetropoleCafe.com is a subscription Web site run by Bill Murphy, a former commodities broker and one-time wide receiver for the Boston Patriots of the old American Football League. (Don't know why that seems to matter.)

The site's known as the focus of a vibrant Internet community focused on the question of whether gold prices are being manipulated by authorities. (Can't be true, right? After all, governments don't intervene in currency markets, right? Oh -- wait a minute. ...)

One fact that Le Metropole Cafe alone seems to report: India's gold imports are now soaring. Newly booming, India ranks as one of the few examples of outright gold consumption in the world -- it's used widely for jewelry, especially for in connection with brides and weddings.

At recent prices, judging by the local price premium relative to world prices, India's offtake is huge. It had followed the gold price all the way up since 2002, hesitating only at the $700-plus extremes reached this past spring. Now it's back with a vengeance.
This suggests there's a floor ratcheting up under the gold price. For some reason no other gold-timer seems to pay attention to this phenomenon.

(Full disclosure: the Indian price premium data used to be provided to LeMetropolecafe by my brother John, who has now disappeared into the bowels of a hedge fund.)

This isn't to say that Le Metropole Cafe has given up on more imaginative speculation. For example, its readers are currently excited about what they regard as evidence that the recent break in gold was driven by systematic central-bank selling, not wavering speculative sentiment.

Their most recent evidence: An Oct. 5 admission, apparently inadvertent, by Bundesbank President Axel Weber that "we have been asked to negotiate with other central banks'' about potential swap deals involving the yellow metal.

Bill Murphy commented: "That is fascinating as it leads to the heart of where the [gold manipulation] camp comes from ... that there are sizable, undisclosed swap operations out there, which is the main method to dispose of central-bank gold into the market in secret fashion. By swapping the gold, the central bank does not have to announce it has sold its country's stash of the stuff."

The purpose of all this, according to Le Metropole Cafe conspiracy theorists, is to perpetuate an inflationary boom that benefits governments and Wall Street alike.

Mad, eh? But you didn't know that Indians are importing gold either, did you?

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