Peter Brimelow: Golden suspicions -- newsletters wonder about market manipulation

By Peter Brimelow
CBSMarketWatch.com
Monday, February 5, 2007

http://www.marketwatch.com/News/Story/Story.aspx?guid={7B057E5F-A1BE-49ED-9ACF-01720C5F524A}&siteid=mktw

NEW YORK -- The past week was dramatic for gold. And the letters smell manipulation.

At Thursday's close, the yellow metal had risen to a high not seen since July last year (briefly). Then heavy selling in New York on Friday eradicated almost the entire week's gain.

Which is more significant -- the metal's ability to reach a new 2007 high, or its inability to hold it?

Veteran Market watcher Richard Russell of Dow Theory Letters thinks the former. Presenting a weekly chart, he says, in techspeak: "I've drawn the chart along with trendlines to illustrate the 'fanline principle.' The fanline thesis is as follows when three successive and less acute fanlines are drawn, if the item breaks above the third fanline, the item has reversed its trend to the upside. That's what I believe gold has done over the past two weeks. If so, we should see new highs in gold before the year 2007 is out."

Russell does not hesitate to question the character of Friday's selloff: "Ironically, no sooner did gold bullishly break out of its fanline pattern than the metals were whacked. And I wonder: Was this just the action of traders taking profits on a breakout or was this the result of someone or some group dumping a load of gold on the market in an attempt to 'stem the bullish gold tide'? In the end, it really doesn't matter. ..."

Bill Murphy's thesis that gold is subject to manipulation, advanced at his site www.LeMetropolecafe.com, seems to me to be gaining ground. Earlier this week The Gartman Letter made virtually identical comments as Russell, while doubling its recommended gold exposure.

I like to gain perspective from the authoritative 5x3 point and figure chart available on the public portion of Australian site www.The-Privateer.com. This gained another notch this past week and was unmoved by Friday's failure.

The Privateer is another service becoming ruder about the integrity of gold trading. On its analysis, a $660 close signals a decisive breakout. It writes: "On Feb. 1, the London PM Gold Fix was $US 660.20. ... The next day, Feb. 2, the spot future Comex contract closed down $US 11.20 at $US 646.20. Gold 'bugs' are not the only ones who can read gold charts."

Martin Pring in www. Pring.com's technical commentary does not concern himself with the whys of markets. So it serves as a good illustration of how serious Thursday's close was. Pring focuses on the Goldman Sachs Precious Metal Index: "The Goldman Sachs Precious Metal Index is breaking to the upside. The critical level appears to be that around 915 ... a more decisive upside breakout is quite likely now."

This was written on Thursday, after a 918.08 close. But Friday's was 901.23. Hmmm.

Gold and commodity bulls received a crucial increase in support this past week when 13-D Research, written by my old friend Kiril Sokoloff, went bullish. This service, similar to The Gartman Letter in being very expensive and marketed to institutions, publishes weekly and concentrates on matters of grand strategy. It's not followed by the Hulburt Financial Digest. But its fans say its record is formidable.

Buying an outright oil position for what it says is only the second time in its history, 13-D suggests commodities could be starting a "huge rally, led by gold."

Once again this is illustrated by a gold chart as of Thursday's close. But 13-D is not likely to be shaken by one day's action.

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