Peter Brimelow: Gold's odd price move

By Peter Brimelow
MarketWatch.com
Sunday, December 16, 2007

http://www.marketwatch.com/news/story/privateer-says-macro-problems-powe...

NEW YORK -- A poor week for gold. But the gold bugs are grimly determined (again).

Well, it wasn't really bad -- the metal was down only $1.10 from Friday to Friday. But it did lose more than $20 from Wednesday's high. The sensitive Amex Gold Bugs Index (HUI) lost over 7% in the week.

More alarming, The Privateer's U.S. Gold 5x3 Point and Figure chart turned down on Friday. It now displays an ominous pennant:

http://www.the-privateer.com/chart/gold-pf.html

As The Privateer dryly notes: "The BIG distribution zone is coming to a point. The price will have to break out of it soon. The only question is, in which direction?"

What was striking about this was that it happened in the teeth of an abundance of gold-friendly news.

Thursday's inflation news was horrific, as Privateer noted: "The biggest monthly rise since August 1973! Yep, that's a little over 34 years ago at the dawn of the global fiat currency era."

And financial structure stress news is the worst since the early 1970s. (I know: I was there). The Bush administration's nationalizing of the mortgage crisis has disillusioned even solid loyalists such as The Gartman Letter, which this past week formally abandoned support of the White House.

What happened?

Bill Murphy of the manipulation-minded Le Metropole Cafe had an answer, in fact two:

Thursday headline: "Shoot the Messenger."

Friday headline: "They shot the Messenger yet again."

No one should dismiss this point of view without reading Le Metropole's powerful Friday article from a source called Deepcaster: "Important new data releases from the BIS (Bank for International Settlements, the central bankers' bank), the U.S. Bureau of Labor Statistics, and the U.S. Federal Reserve are quite astounding. They reflect a considerable acceleration of market intervention. ... These developments dramatically increase systemic risk."

I've discussed Le Metropole's argument that the authorities are manipulating markets before. But what is the underlying problem?

For this purpose, I think The Privateer is exceptional.

I have never met or corresponded with the proprietor, William Buckler, who, I am reliably informed, operates from a slightly inland rural setting half way up the right hand side of Australia.

But who cannot pay attention to this, from his bulletin published this Sunday? "On Dec. 6 President Bush and Treasury Secretary Paulson announced an agreement with lenders that will fix rates on some mortgage loans for five years. ... Of course, what has been totally pushed aside, for now, is the simple fact that this action has breached contracts all over the world. ... The precedent has been set. Now extend it to the global debts of the U.S. Treasury. Nearly two-thirds of the U.S. Treasury's debt (notes, bills, etc.) is short-term; it matures within one to three years. If interest rates on this short-term official U.S. debt paper start climbing early next year, so would the cost to the U.S. Treasury of servicing its massive foreign debts. What happens if Bush and Paulson act on the earlier "precedent" and unilaterally alter the U.S. Treasury's one- and three-month notes, changing them all to five-year notes, for example?

"Total U.S. credit market debt has now exploded 20% in two years. Since the beginning of 2003, total debt has surged 50%, rising from 298% of GDP to 343%. This is the biggest credit inflation in human history. ..."

GoldMoney's James Turk this past published his FreeMarket Gold & Money Report's 2008 predictions: "Gold will see $1,500, and close the year at $1,200-$1,300."

We can laugh, but the gold bugs have been winning the argument since gold made its low early in the decade.

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