Peter Brimelow: Gold bounces back as manipulation plan is exposed

Gold Bounces Back

By Peter Brimelow
MarketWatch.com
Thursday, January 22, 2009

http://www.marketwatch.com/news/story/story.aspx?guid=%7BA0FDDFC0%2DD424...

NEW YORK -- When I last wrote on gold, the metal's very promising year-end rally was attracting attention, especially because the world's banking problems, and the response of governments, had created an outstanding macro case for gold.

Paradoxically, the only party-pooper was the section of Bill Murphy's radical gold bug service, LeMetropoleCafe.com, that follows Indian gold offtake. It was complaining that the world's largest consumer was not buying.

Gold promptly broke down some $80.

But after the low on Jan. 15, (at which point LeMetropoleCafe's India section was moved to ask, "Is India back?") gold, and the gold shares, rebounded.

Comex gold closed on Wednesday at $850.10, up $42.4, or 5.2%. The Australian gold service The Privateer's magisterial $US 5X3 point-and-figure chart has not only reversed its Jan. 5 downturn but has broken through a major downtrend. See the chart:

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

Needless to say, the credit crisis continues, generating even more ugly headlines recently.

Perhaps this is why The Gartman Letter, which usually cuts losing positions promptly, has hung on. Buying right at the end of last year, TGL has unflinchingly accepted its punishment, and never even posted a stop-loss level. It needs $870 to break even.

A lot of gold bugs prefer (naturally) the conspiratorial view that the very well-informed Dennis Gartman Knows Something. And certainly the move up this week has been highly concentrated in New York hours, and fast -- an unusual pattern suggesting major players are, well, playing.

However, there is a problem. As LeMetropoleCafe's Bill Murphy said in his commentary Wednesday evening: "Yesterday's surge was stopped dead in its tracks by the Gold Cartel and is very disturbing. The gold open interest rose a very sizeable 13,772 contracts to 331,507, which is why gold dropped so much off its highs. Same drill ... with The Gold Cartel surprised by aggressive buyers who took the price of gold up very quickly ... leading to the same cabal reacting within hours of that buying to keep the price from continuing to run higher."

Traditionally, conventional gold bugs have believed that the metal's price is driven by irresponsible money supply increases. More recently, radical gold bugs like Murphy and his supporters have claimed that the U.S. authorities, in alliance with private interests, have surreptitiously interfered with gold for years, with a view to distorting the message it can send the financial community. They refer to this as the Gold Cartel.

Rapidly rising open interest -- the volume of contracts outstanding -- indicates a new actor is present.

Well, governments doing funny things is not as paranoid a concept as it seemed some years ago!

As it happens, GoldMoney's James Turk has published a discussion of a new piece of evidence supporting the radical gold bug thesis in the latest issue of his Freemarket Gold & Money Report -- a memo to Kennedy-era Fed Head W. McChesney Martin discussing how to disguise foreign exchange market interventions. This seems to show government manipulation of markets is long-established.

Turk comments: "I have long hoped that a 'confidential' document like this one would eventually emerge. There are no doubt countless more like it."

[See http://www.gata.org/node/7096]

So the gold bugs may indeed be fighting city hall. But city hall does not look as formidable any more.

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