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Peter Brimelow: Gold is pole-axed but bugs (and others) are calm
By Peter Brimelow
MarketWatch.com
Thursday, January 6, 2011
http://www.marketwatch.com/story/gold-pole-axed-but-bugs-and-others-calm...
NEW YORK -- Gold gets pole-axed, but the radical gold bugs, and even some more orthodox observers, remain calmly confident.
I have to congratulate me: My Dec. 20 column "A golden year end?" proved correct. (http://www.marketwatch.com/story/gold-could-have-a-golden-year-end-2010-....) From the New York floor close the previous Friday (Dec. 17), the CME's most active contract rose $47.30 to the New Year's Eve close two weeks later of $1,421.40.
As Australia's The Privateer put it: "This was the high for the year ... also a brand new all-time high for gold in U.S.-dollar terms. And last but not least, it was the highest point yet reached in a bull market which has now continued unbroken for a full decade."
But then gold got pole-axed. Over the past two days, the most active CME contract (February) dropped $49.20 (3.46%). The highly-leveraged gold shares, of course, did worse: The ARCA Gold Bugs Index (HUI) dropped 5.06%. Gold is back to the level of mid-December, and the shares to their level of late November.
Is this serious? Short-term technicians are upset, of course. Representative is bullion dealer ScotiaMocatta's comment last night: "Gold has dropped for the third consecutive day to $1,374. The metal initially probed lower to $1,364. Key technical support lies at $1,363, the mid-December lows. This is the third month in a row that we have seen cycle highs above $1,400 to start the month (Nov. 9, Dec. 7 and Jan. 3)."
... Dispatch continues below ...
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"The Jan. 3 high of $1,423 failed to retest the December high of $1,430. This heightens the risk of a deeper liquidation on a break below $1,360."
MarketVane's Bullish Consensus for gold has plunged 7 points in the past two days to 72%, the lowest since way back on Nov. 17. While from a contrary-opinion perspective this is gold-friendly, it is also a dramatic demonstration of the sentiment collapse.
But generally gold's friends are unperturbed. Today The Gartman Letter (which has long been critical of gold bugs but is currently over 50% precious-metals-long in its model portfolio), was forthright: "Do nothing for now. ... We do need to remember that gold faltered from approximately $1,250 to $1,150 midsummer last year."
The Gartman Letter's opposite number in many respects is Bill Murphy of LeMetropoleCafe, one of a group I have called "radical gold bugs" because they have long maintained the metal’s price is being manipulated.
Murphy wrote yesterday: "Clearly the Gold Cartel is on a mission to bury gold and silver. Veteran Cafe members have gone through this drill time and time again. Sometimes in the past the raids have led to prolonged periods of precious-metals price weakness. Others have only led to temporary price weakness. This bombing ought to be the latter for a very good reason."
The "very good reason" Murphy cites is the usual: evidence of a strong upswing in physical gold offtake in various Eastern markets, notably India, as evidenced by the premiums to world gold in local markets, monitored by the website.
Support for this view came from the respected institutional gold commentary of Edel Tully at UBS on Wednesday morning: "Our physical sales to India yesterday were the highest in 12 months — from a time when gold was trading around $1,100."
LeMetropoleCafe also noted that open interest -- the number of CME gold contracts outstanding -- actually rose 1.02% on Tuesday:
"That open interest should go up, and by so much, on a day when gold itself was down 3% or so from a recent high, is really quite remarkable. There must have been at least some long liquidation. The short-selling effort must have been massive."
This combination of factors causes a Cafe correspondent to repeat a terse headline used on the site late last summer: "Back up Truck." I noted this at the time in a column headlined "Gold down, but radical bugs aren't out."
They weren't -- and neither was gold. Now they expect the same again.
* * *
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Prophecy Drills 71.17 Metres of 0.52 percent NiEq
(0.310 percent Nickel 0.466 g/t PGMs +Au and 0.223 percent copper)
from surface at Wellgreen Project in the Yukon
Prophecy Resource Corp. (TSX-V: PCY) reports that it has received additional assays results from its 100-percent-owned Wellgreen PGM Ni-Cu property in the Yukon, Canada. Diamond drill holes WS10-179 to WS10-182 were drilled during the summer of 2010 by Northern Platinum (which merged with Prophecy on September 23, 2010). WS10-183 was drilled by Prophecy in October 2010. Highlights from the newly received assays include 71.17 metres from surface of 0.52 percent NiEq (0.310 percent nickel, 0.466 g/t PGMs + Au, and 0.233 percent copper) and ended in mineralization. For more drill highlights, please visit:
http://prophecyresource.com/news_2010_nov29.php
