Peter Brimelow: Gloom about gold except among the radical bugs

By Peter Brimelow
MarketWatch.com
Monday, April 20, 2009

http://www.marketwatch.com/news/story/gloom-about-gold-except-among/stor...

NEW YORK -- A dismal week for gold. But the radical gold bugs are (not for the first time) quirkily confident.

From Tuesday -- when Europe returned from its long Easter weekend -- to Friday, gold fell by some $28 to $868.70, a three month low. This violated various technical support levels and left chart-oriented gold observers downbeat.

Dan Norcini, in his daily essay on Jim Sinclair's MineSet site, wrote Friday:

"Increased selling pressure hit the gold market during today's session, as the broken neckline support level that had been serving to hold prices from moving lower finally gave way overnight. ... [The] 100-day moving average is keenly watched by technically oriented trading funds, and now that it has been breached, their algorithms have them selling. Bulls need to push prices back above $880 pronto-like."

The Australian gold site, The Privateer, noted sadly over the weekend:

"We said here a little more than a month ago: 'We have the high likelihood of a trading range between US$900-$925 and US$1,000.' That trading range was established but did not hold. ... The reverse head and shoulders formation remains intact, but the 'right shoulder' is sagging at present."

The great long-term Privateer $US 5X3 Point and Figure chart, which it makes available to the public, looks -- in a word -- bad:

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

Conventional gold bugs are particularly puzzled, because on their analysis, global monetary conditions are suggest looming massive inflation and are thus extremely favorable for gold.

But "puzzled" is not the word for the radical gold bugs grouped around Bill Murphy's LeMetropoleCafe.com site.

I call the Murphy mob "radical gold bugs," to the disquiet of some readers, because they focus not merely on inflation but on the possibility of gold market manipulation.

Murphy believes he knows precisely what is happening. From his Friday commentary:

"It's SHOOT THE MESSENGER time (machine guns) as far as gold and silver are concerned, probably with undisclosed U.S. gold leaving our vaults. ... My view is that the Plunge Protection Team/Cartel is trying to get gold and silver as low as possible before the next FOUR shoes drop: prime mortgages, insurance company blowups, credit card blow-ups, and commercial real estate."

After the market closed, Murphy wrote:

"Oh yes, the daily gold action. Yep, nothing changed. Mission accomplished by the bums with gold closing right at, and above, its various 200-day moving averages. They must be licking their chops in anticipation of Monday."

Murphy takes pleasure in remarks last week by Federal Reserve Gov. Janet Yellen. She said: "New methods of financial engineering, such as credit default swaps and the securitization of many assets, provided an 'illusion of low risk' that quickly disappeared once the underlying borrower started to default."

The central LeMetropoleCafe contention has been that the authorities have been tampering with gold to create this "illusion of low risk."

Paradoxically, it is on Lemetropolecafe that the most upbeat discussion of gold's short-term prospects can be found. The site monitors Asian physical gold markets, and has recently started to report the return of high local premiums in India and Vietnam.

In the LeMetropoleCafe world view, the only reason gold has risen in the last several years is that obstinate Asian buying of physical gold has, from time to time, forced the (alleged) official sector price managers to retreat.

This analysis has worked repeatedly in gold's post-millennial bull market. Its time may be here again.

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