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Gold emerges as currency of choice as euro buckles
But there are signs that gold is starting
to outrun price-capping sales by central banks
By Peter Brimelow
CBSMarketWatch.com
Thursday June 16, 2005
http://www.marketwatch.com/news/print_story.asp?print=1&guid=
DEC07CEB-11B7-421B-AAEF-984862700B27&siteid=mkwt
NEW YORK -- What does it mean when gold gives a Euro party and nobody
comes?
Late last week the price of gold expressed in Euros, the European
common currency, broke above E350 an ounce. Early this week it went
on to make a high never seen since the currency was invented five
years ago. It creates a remarkable chart, and was an excitedly-
anticipated event.
But no one cheered. GoldMoney's James Turk was optimistic but
cautious: "Gold needs to break above E361.13 to give a clear signal
that it is in a new uptrend against the euro, and I expect this
breakout will happen soon."
Australia's magisterial The Privateer service took a similar
position. I'd like to be able to quote, but unusually as I write,
this Website is down.
My old friend Ian McAvity, in the most recent issue of his
Deliberations letter, sniffed: "Gold above 355 Euro would become
significant in confirming a turn in the big picture trend. ...
Resolution of a 15-year wide base formation doesn't necessarily
translate into a 15-day 'moon-shot' trade for those who seem a tad
overexcited."
(Gold has in fact been just over E355 most of the time since Ian
published)
This unenthusiasm is reflected in the sentiment numbers. MarketVane's
Bullish Consensus for gold, even after Wednesday's firm performance,
was only 67%. That compares to a recent low on May 23 (when gold was
$417) of 61%. That was also the low for the year.
Curiously, it is some of the longstanding bears who seem most
impressed. Barclays Capital Research, a leading institutional
proponent of the Gold/Euro link, said today:
"The commodity that has gathered the most media coverage from its
break from dependency from the euro-dollar exchange range has been
gold."
Barclays takes comfort that: "Despite this trade becoming "flavour of
the month", there appears to be heavy resistance between E350 and
E360 but concedes "there does appear to be an increasing appetite to
test the E360 level"
Gold bulls cite currently favorable technical details.
The Come data indicates speculative involvement at the low levels
usually associated with price bottoms, and an unusually high volume
of shorts.
Early this week gold was restrained by heavy liquidation of Tokyo
Commodities Exchange futures positions by Japanese speculators,
happily taking profits as gold reached a 13-year high in yen. But
these speculators are now out.
Physical market premiums from India and the Far East suggest these
markets are still buying.
Intriguingly, the European Central Bank's flock of subordinate
central banks have ramped up their gold selling to what appears to be
an unsustainable pace: over 12 tonnes a week for the last three
weeks.
Under the Central Bank agreement on gold sales, only another 100
tonnes is permissible up to the end of September -- less than several
tonnes a week.
Skeptics feel Central Banks can evade these restrictions.
But bulls suggest that an apparent termination of these sales, or
perhaps a touch more progress on the eurogold chart, will catch the
attention the attention of Europe's recently much enlarged hedge fund
community -- and surprise gold's long-standing but currently timid
friends.
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Ted Butler silver commentary archive:
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