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Peter Brimelow: Gold to test $720?
By Peter Brimelow
MarketWatch.com
Monday, July 23, 2007
http://www.marketwatch.com/news/story/gold-test-720-ounce/story.aspx?gui...
NEW YORK -- Gold's on a roll (again). And the gold bugs are gloating.
Gold closed at $683.50 an ounce Friday, after a strong close to the week. And it is not just the gold price chart that is cheering gold's friends. The major gold stocks have suddenly started out performing gold--for the first time in well over a year. This month, the Philadelphia Stock Exchange Gold Silver Index (XAU)
is up 16% and the Amex Gold Bugs Index (HUI) 14%. Gold itself is up just over 5%.
Which shows what a difference a month makes. When I last wrote a general roundup, it was a white-knuckle moment for the gold bugs. Gold was struggling to recover from a chilling drop below $640. Gold shares were at a three-month low.
Now the situation has been transformed.
How important this bullion blip has been is well illustrated by the Australian gold Webzine The Privateer's long-term point and figure chart, which it kindly makes available for free:
http://www.the-privateer.com/g-charts.html
This is designed to register only very important moves. It shows that, last week, gold regained the crucial 2002-7 uptrend channel from which it was evicted in early June.
Gold share action has a big impact on sentiment. Some influential services place great faith in the equities' predictive power.
Martin Pring, for instance, has become distinctly friendlier to gold because of this: "The Amex Gold miners Gold Share ETF (GDX) has tentatively broken out from a large consolidation pattern. If it can build on this strength in the coming days, such action would suggest that gold will also be able to manage a rally above the all important $700-720 area."
Above $720 implies exceeding the multi-year high of last May, beyond the hopes of many gold bugs less than a month ago.
Another group of gold bugs focus on the arcane question of trader positions in the U.S. futures markets, as reflected by the daily "open interest" reports and the weekly Commitment of Traders reports from the Commodity Futures Trading Commission. They are, if anything, even more excited, seeing unusual positive events.
The Privateer observes: "Ominously, for those who are desperate to keep the U.S. gold price under ... the open interest on the U.S. gold futures markets has actually been declining as the gold price rises. This points towards a shrinking of short positions, and the holders of the big gold short positions are the big New York money center banks, AKA 'the funds.'"
This point is amplified by Dan Norcini, whose "Trader Dan" technical commentary is posted at Jim Sinclair's Web site: "The large funds could add a considerable number of new long positions in this market before reaching the level associated with any sort of extreme. From my perspective, gold could easily test the $700 level given the current internal structure":
A commentary on Bill Murphy's Web site points out that most of the strength in the gold indexes stems from only a few of the component stocks. Most of the junior gold shares, which historically far outperform the big gold companies in serious gold moves, have not budged yet:
http://www.lemetropolecafe.com/
Murphy himself comments that his "Cafe Sentiment Indicator" (which is reportedly to be derived from traffic data for his site) is "wimpy."
The gold train may not even have left the station.
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