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America again tells the world: Dollar is our currency but your problem
By Peter Brimelow
CBSMarketWatch.com
Monday, March 14, 2005
http://cbs.marketwatch.com/news/story.asp?guid=%7B8EFA20EF%2DC6E9%
2D46EF%2DA1B3%2DB57091817C18%7D&siteid=mktw&dist=
NEW YORK -- Last week the Commodity Research Bureau Index (CRB)
surged to levels not seen since the alarming weeks of late 1980. The
dollar index slipped 1.4 percent. Gold, which was up $11.70, or 2.7
percent, therefore rose in terms of foreign currencies. But gold
shares were ominously soft.
Both the Amex Gold Bugs index (HUI) and Philadelphia Gold/Silver
Index (XAU) were only up some 2 percent. On Thursday they actually
fell, although gold rose. Are the shares suggesting the gold sector
will sit out the commodities ball? Why?
This commodities up/dollar down bash is some party. Asserting that
the CRB has "taken off" and illustrating this with one of its
beautiful trademark point and figure charts, Australia's The
Privateer Web site headlines, "Ignore The Booming CRB Index At Your
Peril." Bridgewater Associates "Daily Observations" on Friday was
cheerfully talking of "The Breakdown of The Dollar System." Perhaps
most impressively, the well-connected institutional service The
Gartman Letter, which adroitly predicted the dollar's New Year
rally, berated itself on Wednesday for recently reiterating
bullishness ("We were wrong ... hubris of the first and highest
order ...") and has completely readjusted its model portfolio.
Yet the gold bugs are furious, and they do have something to
complain about. Dan Norcini documented on LeMetropole Caf that
all previous times the CRB index has been at this level, gold was
around $600. The Privateer observes that if the CRB and gold had
kept pace since the latter's $456 peak on Dec. 3, gold would now be
$510.90. Apparently the gold shares are right to detect something
troubling about the performance of the metal.
The pro-gold community generally agrees as to what it is: covert
selling by central banks. In an important development for this
group, the March issue of Jefferson Financial's Gold Newsletter
carries an essay by Frank Veneroso. Veneroso, who led revolutionary
analytical developments in the gold world in the early '90s,
addresses the World Gold Council market survey prepared by the
consultants Gold Field Mineral Services (GFMS). He has said little
on this subject for several years. Now, in a powerfully argued
piece, Veneroso declares the GFMS estimates "so removed from
historical trends and current market trends that they have become
ludicrous."
Further, accepting the view that the gold market is managed,
Veneroso gives cautious approval to the contention favored by the
LeMetropole site that the "manager" is in retreat. This is the point
which gold shares currently do not accept.
An elegant and exhaustive discussion of the immediate empirical
evidence for this view was published this weekend in the new issue
of James Turk's Freemarket Gold & Money Report. Turk
concludes: "Central banks have created a wonderful opportunity. ...
All they have managed to do is to make gold ... very undervalued."
He adds a long-term technical argument for gold shares.
Buying the end of a long-running liquidation -- a "cleanup" -- is a
respectable strategy. With dollar and commodity sentiment as it is,
the tide has not run so strongly for the gold bugs for many years.
But Mark Hulbert worries that his gold indicator is high at 71.43
percent. (It crested at 78.57 percent in early December.)
MarketVane's Bullish Consensus for gold reached a 2005 high of 75
percent on Friday. (It peaked at 81 percent on Dec. 3.)
The Wall of Worry is definitely here. Perhaps this time it will give
us a better vantage point into this traditionally inscrutable market.
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RECOMMENDED INTERNET SITES
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Free sites:
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http://www.interventionalanalysis.com
http://www.investmentindicators.com/
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Ted Butler silver commentary archive:
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