Fishy stuff in gold market is making it into news reports

4p ET Friday, February 2, 2007

Dear Friend of GATA and Gold:

Even as gold is down, it's a great day when GATA sympathizers constitute the majority of analysts quoted in the CBSMarketWatch report on the gold market, as was the case today in the report appended here, quoting, among others, GoldSeek's Peter Spina, Blanchard & Co.'s Neal Ryan, and Peter Grandich of the Grandich Letter. Ryan notes the "counter-intuitive moves" in gold -- that is, fishy stuff -- and Grandich cites the enduring coincidence of bear raids on gold whenever U.S. employment figures are announced. With a little help from our friends, the world is figuring it out.

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

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Gold Drops But Still Ends Higher on Week

By Myra P. Saefong
CBSMarketWatch.com
Friday, February 2, 2007

http://www.marketwatch.com/news/story/gold-futures-drop-still-poised/sto...

SAN FRANCISCO -- Gold futures dropped nearly $12 an ounce Friday as growth in fourth-quarter U.S. payrolls sent the U.S. dollar higher, but the metal still ended slightly higher for the week.

Gold had climbed to a six-month high in the previous session.

After seeing such strength during the last several sessions, "the market could not extend itself and quickly, the nervous buyers have exited seeking to book profits as the U.S. dollar found some strength," said Peter Spina, chief investment strategist at GoldSeek.com.

"There is no reason to believe this is nothing more than just a temporary pullback to shake out some weak hands," he said.

And the decline will offer an opportunity investors, according to Ned Schmidt, editor of the Value View Gold Report. "This selling will set up the gold market for an oversold condition, which will create a buying opportunity for true investors next week," he said.

Gold for April delivery closed down 1.7%, or $11.50, at $651.50 an ounce on the New York Mercantile Exchange, following a drop to $648. The contract had gained $5.10 on Thursday to mark its third-straight winning session, trading as high as $667, the contract's strongest intraday level since Aug. 9.

"Today we find the funds making the play," said Julian Phillips, an analyst at GoldForecaster.com, in an e-mail Friday morning. "Seeing no follow through from the physical side and from the long-term investor, the funds are hesitant to move in, so demand has dropped ahead of the weekend," he said. "The fall below support in the mid-$650s could pull it back a little further, but we are now in consolidation mode for the weekend at least."

"Nothing has changed except the dollar has firmed back up, he said. "This is enough to make the funds hesitate to make new long positions."

Putting pressure on gold, the dollar traded higher against other major currencies Friday, reversing early losses sparked by a government report showing the U.S. economy created fewer-than-expected jobs last month. Payroll growth in the fourth quarter was stronger than expected.

"Sometimes investors have to get used to these counter-intuitive moves in the metals and currencies markets," said Neal Ryan, director of economic Research at Blanchard, pointing out that analysts have been blaming gold's retreat on profit taking and other factors even though "every other indicator" should be pushing the price higher. "These types of moves should be looked at as the perfect entry point for an investor," he said.

The Labor Department said Friday that job growth rose moderately in January and the unemployment rate ticked higher. Nonfarm payrolls expanded by 111,000 in January, lower than the 170,000 expected by economists surveyed by MarketWatch. The unemployment rate rose to 4.6% in January from 4.5% in the previous month. Economists had forecast the unemployment rate to hold steady at 4.5%.

"Gold has once again succumbed to a bear attack, a feat that coincidentally continues to happen on the day U.S. employment figures are released," said Peter Grandich, editor of the Grandich Letter. "I believe it will be a bear trap and we shall see a reversal next week that leads us to a rally to $700," he said.

Elsewhere on the commodity markets, crude-oil futures climbed above $58 a barrel as forecasts suggested the cold snap in the northeastern U.S. will continue well into February. Prices had climbed near $59 a barrel Thursday to their highest level in a month, before falling back to end that day with a loss. See Futures Movers.

Moves in commodity prices have been particularly volatile lately, but a closer look at the fundamentals can help to clear up the confusion, analysts say. See Commodities Corner.

Economists at research firm Action Economics noted that many commodities have been performing strongly in recent weeks, finding strength in part from signs of generally robust global growth.

Against this backdrop, other metals prices dropped on Friday. March silver dropped 2.6%, or 35 cents, to close at $13.375 an ounce, unchanged from the level it closed at a week ago.

March copper declined 14.3%, or 10.75 cents, to end at $2.423 a pound, down 8.2% from a week ago.
April platinum closed down 2.5%, or $29.30, at $1,163.50 an ounce. March palladium fell $6.65 to close at $338.25 an ounce. Both contracts ended lower for the week.

On the supply side, gold inventories increased 32,150 troy ounces to stand at 7.49 million troy ounces as of late Thursday, according to Nymex data. Silver supplies dropped 34,164 troy ounces to 113.93 million troy ounces, while copper stockpiles added 200 short tons to stand at 36,169 troy ounces.

Over on the London Metal Exchange, zinc prices touched their lowest price in seven months Friday as concerns over supply levels eased.

A report that Red Kite Management, a $1 billion metals trading hedge fund, wants to extend the notice period for investor redemptions after losses of as much as 15% in January, may be affecting metals trading as well, analysts said Friday.

Red Kite, run by Michael Farmer, Oskar Lewnowski, and David Lilley, asked investors in its metals fund to approve an amendment that would require 45 days notice before money can be withdrawn, according to a copy of a Jan. 31 letter from the firm obtained by MarketWatch.

"If anything, that makes things look even more bullish in my mind," Ryan said of the news.

"The more information that hits metals markets of Refco and Amaranth type blowups, the more bullish I think it looks for precious metals," he said. "I can't imagine any investor is going to willingly say yes to extending redemption dates that only ends up hurting them in the long run."

When asked, Grandich said that it's possible that the decline in gold is related to this news on Red Kite, "but I suspect with gold at its highest level in months, any losses they could have related to gold would be from the short side," he said. "I do think it's an indication of what can happen in the overall hedge-fund industry when the bubble bursts in the stock and credit-derivatives markets," he said.

And hedge-fund concern is "far more possible in regards to copper, given how much the hedge funds were long that market, the big decline and the further sell off today," Grandich said.

In equities trading Friday, the main benchmarks tracking metals and mining stocks fell along with the metals prices, poised for their first broad loss in four sessions.

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