Peter Brimelow: Gold jumps but bugs are still suspicious

By Peter Brimelow
MarketWatch.com
Monday, April 16, 2007

http://www.marketwatch.com/news/story/story.aspx?guid=%7B87D8C029%2DAD82...

NEW YORK -- Gold closed Friday up $10.20 in New York, close to the year's high. But that followed a week in which the failure of the metal to respond to usually helpful influences -- a reeling dollar, surging metal prices, various economic and political factors -- had caused widespread gold bug grief and rage. Over the weekend, that's been intensified by rumors of renewed official-sector gold selling.

Long-time believers in gold price manipulation, like Bill Murphy of www.LeMetropolecafe.com, have of course been apoplectic.

But more conventional commentators were also upset. The Gartman Letter, which is carrying a fairly large gold position, writing extremely early on Friday, expressed itself "somewhat dismayed by gold's rather tepid action" and commiserated with clients who sold.

Quite unusually for recent times, gold's powerful action on Friday was exceeded by even more violent increases in the gold shares. The American Stock Exchange Gold Bugs Index (HUI) jumped 2.41% to Comex gold's 1.5%.

If sustained, this could have an important impact on sentiment. The idea that gold shares lead gold is deeply ingrained, and an end to their recently sluggish performance would be a great recruiter for the bulls.

Technically, both metal and equities made or are about to make very important breakouts, depending on pencil thickness and magnifying-glass power. This is true even of The Privateer's mighty U.S. dollar 5x3 point and figure chart, which is designed only to register really important turns.

(Privateer amiably makes this available to nonsubscribers: http://www.the-privateer.com/chart/gold-pf.html)

Privateer commented over the weekend: "The chart is now at a decisive juncture. We have a potential 'double top', which would be realized if gold turned below the U.S. $690 level and retreated to close at $670 or lower. On the other hand, any gold close of $700 or higher would re-confirm the current uptrend line and set the stage for a run at the bull-market high set in May last year."

The Privateer is even more outspoken about the U.S. Dollar Index: "The 80 level on the US Dollar Index ... has been the floor ever since its inception in the early 1970s. As we have often pointed out, both here and in past issues of The Privateer, the 80 level on the Dollar Index is "the most important 'support point' in the world. As of April 13, the Dollar Index is down to 81.96. ..."

Privateer implicitly endorses the gold manipulation thesis: "What IS surprising, if due consideration is not given to the global strategic, political and financial issues involved, is that gold is still rising so slowly in U.S. dollar terms."

The past week's indignation amongst the manipulation school was, however, nothing to the explosion of rage on the Internet this weekend following IMF and Japanese comments about the possibility of renewed IMF gold sales.

Gold bugs say these stories have a strange habit of appearing as gold gets ready to make a decisive upward move. They do not always prevent it happening. But many gold friends remember bitterly the two years of misery which followed the Bank of England sale announcement on May 1999.

In response, LeMetropolecafe's hardworking Bill Murphy put up an extensive summary of that event and the subsequent controversy. It's an impressive story.
Without some kind of fresh news to shift opinion, gold's move to center stage looks like it's continuing.

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