Peter Brimelow: Is gold gearing up (again) to break $1,000?

By Peter Brimelow
MarketWatch.com
Monday, August 3, 2009

http://www.marketwatch.com/story/is-gold-again-headed-for-1000-break-200...?

NEW YORK -- For the umpteenth time, gold bugs think gold may be poised to break $1,000.

The last week of July definitely lacked summer somnolence in the gold market.

A brutal $14.40 selloff on Tuesday caused chartists great distress. But gold held. And then on Friday it staged an even more powerful recovery, rising some $20, closing at $954.50 and repairing the week's technical damage.

Dan Norcini at JSMineset commented: "I must say that today's sharp climb higher is very impressive from a technical perspective, as it pushed gold back above all of the major moving averages on the weekly chart. It is evident from the ferocity of today's climb that a good many guys got caught flatfooted on the short side and were violently squeezed out."

Friday turned the Australian service The Privateer's celebrated $US 5x3 point and figure chart up:

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

As with other types of gold chart, it now raises the enticing possibility of an immense inverse head-and-shoulders pattern -- bullish implication: maybe $1,300.

MarketVane's Bullish Consensus for gold stood at 80 percent on Friday night: high, but it had phases in the mid-'80s twice this year, and often spends time in the mid-'90ss in a strong gold run.

The Hulbert Gold Newsletter Sentiment Index is at 16.8 percent, about the mid-point of its range.

Two elements are encouraging the bugs to wonder if this could be the start of the Big One -- the push above $1,000.

The first is that the physical market reacted strongly to gold's drop this week. As respected institutional commentator John Reade of UBS remarked on Friday: "The $30 selloff in gold this week prompted a spike in our physical sales to Indian clients. ... Wednesday saw our best day of sales to this region for the year."

This coincided with reports of Indian buying from the radical goldbug service LeMetropoleCafe.com.

LeMetropoleCafe monitors Indian offtake closely. For example, it was upset at the beginning of this year when the rally starting then did not have the support of India, the world's largest gold importer.

The second and more obvious element is the terrible beating the dollar took Friday.

As JSMineset's Trader Dan Norcini put it: "The dollar had the stuffing slapped out of it in today's session. ... The key will be whether or not the U.S. dollar can hold above critical downside support near 78.40 on the U.S. Dollar Index Future. Failure there, and 76 is a shoe-in for the greenback."

On Friday the Dollar Index contract closed at 78.45.

As for gold, Norcini suggests: "If 76 on the USDX fails, gold will be at $1,000 before you can say 'oligopoly.'"

Of course, the gold bugs are ruefully aware that they've here before. They are aware of the danger of taking summer Fridays, and especially month-ends, at face value. And they are particularly suspicious of the U.S. authorities. (The Privateer supplies amusing documentation that every major economic summit with U.S. involvement this year -- such as last week's meeting with China -- has seen a sharp sell-off in gold.)

But the chart prize, both in gold and the dollar, is glittering.

Summer doldrums to the contrary, I expect gold's friends will be up early Monday morning.

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Peter Brimelow is a columnist for MarketWatch.com

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