10:52a ET Saturday, March 14, 2009

Dear Friend of GATA and Gold:

If one is going to criticize reporting and commentary about the gold market, one is likely to have to spend every waking moment doing it. But the story from London's Telegraph that is appended here may be especially provocative. For example:

-- While it's long and purports to be comprehensive, the story never mentions central bank gold sales and leasing and the possible motives behind them, including price suppression.

-- The story never mentions the huge gap between production and demand for gold that long has been filled only by central bank dishoarding. Nor does it mention the steady decline of mine production.

-- The story fails to mention the central banks even after quoting what is essentially an invitation to do so from the ever-disingenuous newsletter writer Dennis Gartman, who affects to be puzzled why gold isn't rallying when it should.

-- The story quotes an Elliot Wave analyst predicting that gold will go lower without also reporting that Elliot Wave has been predicting gold's decline since it rose to $300 a few years ago. Of course it has more than tripled since then.

Well, maybe gold's friends need to worry only when Gartman and Elliot Wave start getting a lot more positive about the metal.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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The Gold Rush: Too Late to Jump on the Bandwagon?

By Paul Farrow and Richard Evans
The Telegraph, London
Friday, March 13, 2009

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/498039... [1]

Fed up with derisory rates on deposit accounts and negative returns on investments, savers have been flocking to the classic haven of gold. They have been snapping up gold bars and Krugerrands at their local bullion dealer.

"We did have people phoning up to inquire about buying gold after hearing the news about the Bank of England printing money," said a spokesman for Baird & Co, the bullion dealer. "Some said they planned to buy a bar or two as a result."

Buying gold bars -- in small quantities at least -- is no different from buying a packet of sweets. Anyone can walk into Baird & Co in the City, hand over some cash, and take away their gold. "The most popular small bar is probably the 1-ounce," said the spokesman. This now costs L721.50. But smaller bars are available: the company's smallest, 2.5 grams, costs L64.50.

It is not just physical gold that we are buying. Turnover in exchange-traded funds has hit record highs, while one bullion dealer has claimed to be taking in L1 of every L100 withdrawn from British banks (a record L2.3 billion was withdrawn from our banks in January). Exchange-traded funds enable small investors to invest in gold from as little as L50 without having to own bullion.

The huge demand sent the price of gold through the $1,000 mark last month but in the past fortnight the price has dropped to around $930.

The primary driver of the demand for gold is fear. The financial crisis and the drastic action governments worldwide have taken to try to alleviate the problems are unprecedented. No one knows the eventual outcome, but many economists reckon inflation will inevitably return, which will support the price of gold.

Chartists will say that gold tends to rise early in the year before falling. It is a play that hedge funds take part in, but there have been signs they have been de-hedging. That suggests that they think gold has further to go. The bulls also think gold looks set to move substantially higher as governments embark on "quantitative easing" -- or printing money.

"Many other countries are certain to follow suit as governments worldwide take a conscious decision not to suffer a '30s-style economic collapse. This is fair enough but is not a cost-free exercise: The price will be much higher inflation further down the road," said Ian Williams, chairman and chief executive of Charteris Treasury Portfolio Managers.

"The consequences are crystal-clear to most investors -- gold is the ultimate safe haven from governments' attempts to debase their various currencies, and will become the asset of choice for many investors wishing to protect themselves from these shenanigans."

Last July, Mr Williams suggested that $2,000 an ounce was possible on a two-to-three-year view. This would bring gold back up to its historical peak in real terms (dollars) last seen in 1980. "This could now turn out to be a substantial underestimate as the stage is now set for gold to rise to $3,000 an ounce or higher as a wave of freshly printed liquidity sparks a renewed global surge into the only asset that investors will trust in these circumstances," he said.

But there are fears that private investors have once again got their timing wrong, because many are jumping on the bandwagon. Last week new software from GoldMoney was launched allowing iPhone users to trade gold on their mobile, while a new website, YourGoldForCash.co.uk, allows people to sell jewellery online.

This is starting to worry analysts. And amid all the bulls, a few bears are beginning to put their heads above the parapet. Several analysts have advised taking profits in the past fortnight, unconvinced that the price of gold can sustain itself above the $1,000 barrier. Indeed, each time it nudges above $1,000, it falls.

Jonathan Prechte, an analyst at US-based Elliot Wave, said gold should go significantly lower. "Too many people now think owning [gold] is a good idea. Remember when everybody thought owning property and stocks was a good idea?" he said. "Again, nothing is certain, but I like betting against crowds. And we have had so many to bet against in recent years: real estate, stocks, subprime mortgages, the New Economy, oil, collectables, commodities, baseball salaries, and now silver and bonds. It's been a smorgasbord of opportunity."

Dennis Gartman, an American economist, said: "Crude oil is rallying; and yet gold falters. The grains rallied; and yet gold faltered. The base metals have rallied, but gold is faltering. The monetary authorities have force-fed money into the system, and yet gold is faltering. In an environment where gold should be heading skyward, it is not, and when something that should be rallying isn't, we pay heed, find our keys, call for the valet to bring our car around and leave the party quietly."

There is a consensus -- even among the bears -- that gold will be volatile in the short term, but it still has a role to play in a portfolio over the long term.

Jeffrey Nichols of NicholsOnGold.com remains bullish for the long term (he foresees more than a doubling of the gold price in the next few years), but said the immediate picture was "less rosy."

"The market has had to absorb an absolutely fantastic flow of old scrap. Millions of people have cashed in their old gold jewellery. In the US, people are holding gold parties where they and their friends sell unwanted jewellery to itinerant scrap buyers. Meanwhile, gold also remains vulnerable in the near term to further appreciation of the US dollar against the euro and yen," he said.

"It's important for gold market participants to remember that long-term trends are always rational but short-term volatility is often emotional and sometimes just meaningless noise."

If buying gold today, ask why you weren't buying two years ago when the price was under $700. If that does not put you off, ask yourself how long you intend to invest in gold for, and why. Is it to diversify a portfolio or to make quick gains? It is, perhaps, pertinent that even some of the most ardent bulls -- and those who rely on gold for their business -- have concerns that the market is "toppy" in the short term.

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http://www.gata.org/node/16 [4]