Peter Brimelow: Is gold really pausing?

By Peter Brimelow
MarketWatch.com
Wednesday, January 28, 2009

http://www.marketwatch.com/news/story/Is-gold-really-pausing/story.aspx?...

NEW YORK -- Mark Hulbert and the radical gold bugs agree: Gold could be pausing.

Will Mark Hulbert's recent column, pointing out that the Hulbert Gold Newsletter Sentiment Index (HGNSI) was over-extended, signal an important top? Or just a ripple?

Either way, there will be a group of angry readers. Of the 220 comments about the column, as I write, the furious bulls outnumber the fanatical bears about 3 to 1.

But both sides are pretty riled up. This is only money, people!

Early Monday in New York, gold cleared $915. But Wednesday evening, it was down $30-plus from its high. And the US$ 5x3 point and figure chart kindly supplied by Australia's The Privateer service has turned down:

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

There is a possibility that the action around the weekend was a false breakout.

If it turns out to be a bull trap, GoldMoney's James Turk will turn out to have been wise in his latest Freemarket Gold & Money Report. Turk accepts the radical thesis that the price of gold is manipulated by an alliance of private and public sector actors.

He writes: "Gold must still contend with the gold cartel and its ongoing efforts to cap the gold price. It may try to 'circle the wagons' above $900, which would seem a logical point for them to make another stand now that $850 has been exceeded. If the gold cartel is successful in stopping gold for any length of time, new longs may get discouraged by the lack of progress and take profits. That selling, along with new shorts by the gold cartel, could begin a cycle of selling that gains momentum and drives gold back to its last level of support, which is $850."

Will gold stumble? In favor of the bears, oddly enough, is the section of Bill Murphy's radical goldbug LeMetropoleCafe Web site that follows India. The Indians are definitely out of the world gold market, it appears. On downswings, their support is usually crucial.

But the radical gold bugs think strange things are happening. Murphy's site noted Tuesday that the extraordinary premiums being paid in the West for gold items did not go away on this month's rise. And the Comex gyrations, closely examined, continue to suggest the presence of large, determined buyers.

For perspective on Mark Hulbert's HGNSI, look at MarketVane's Bullish Consensus for gold. This surveys futures traders. It peaked at 74% on Monday, and came in tonight at 72%.

Sometimes gold peaks do occur with this reading in the 70s. That happened at the turn of the year, and again last September.

But the normal behavior, especially before a big sell-off, is for the upper 80s at least to be reached. Last February/March, as gold attempted $1,000, the Bullish Consensus spent no less than four weeks in the 90s.

So the radical gold bugs conclude that gold may pause. But it's not seen a major blowoff yet.

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