Peter Brimelow: Does gold have one more rally left in 2007?

By Peter Brimelow
MarketWatch.com
Sunday, December 9, 2007

http://www.marketwatch.com/news/story/does-gold-have-one-more/story.aspx...

NEW YORK -- Over the past few decades, gold has been quite often closed the year advancing on a blow-off peak.

There is a rationale for this: India, which as Bill Murphy's Le Metropole Cafe Webzine keeps stressing, is the world's largest bullion buyer, sees crest demand in the early months of the year, the wedding season, when gold is traditionally in demand as jewelry.

Could it happen this year?

Right now gold's strongest friends seem somewhat intimidated. The huge rises in early and late November -- peaks in the $830s and the $820s respectively -- seem, after all these years, to have stunned them.

Dan Norcini, whose highly sophisticated daily commentary appears on Jim Sinclair's MineSet Website, wrote Friday in his "Hourly Action" comment: "It still looks to me like gold is already experiencing end of the year positioning influences as those who have nice big profits from being long this year are booking them and moving to the sidelines. ... This time of the year the trading conditions thin out ... as the insects that live on the trading floor known as the pit locals tend to take over ... to basically stick it to the public."

This sort of year-end profit-taking effect may be true for commodities in general. But gold, of course, is notoriously unique. It simply is more influenced by sentiment about systemic financial risk than anything that is eaten, burned, or worn.

And late 2007 is not short of fears about systemic financial risk.

This no doubt is what the glacially long-term chartist Martin Pring perceived in his latest weekly comment, published on Thursday evening. Pring is especially interested in the action of Amex Gold Bugs Index, which he regards as an indicator of financial system stress. He wrote, in chart-speak:

"Thursday's action was a small outside day and there was a penetration of the potential neckline during the day. By the close of business, though, the price had rallied back to the down trendline. If the line is now violated on the upside there would be a strong possibility that the head and shoulders would fail. This would then have bullish implications for both shares and metal prices. The line, for the record, is currently at 414."

On Friday the HUI closed at 412.06.

MarketVane's Bullish Consensus on gold, a distinctly non-establishment information source, saw gold on Friday night at 80%. That's high overall, but it's close to the lowest level seen in the past three months. And it's a long way from the spectacular 22-day high above 90% in October and early November, which gold-watchers say has no precedent.

In other words, bullish enthusiasm is not at the point at which it would attract contrarian skepticism.

I've written before about the Australian gold service The Privateer, and the wonderful long term point-and-figure chart it graciously makes available for free. It seems in no particular danger of a breakdown right now. See the chart here:

http://www.the-privateer.com/chart/gold-pf.html

LeMetropoleCafe reports that there is one of the periodic confusions occurring about assessing Indian gold prices, due to uncertainty about what local taxes actually are.

But no one suggests that the Indians are far from the market. In fact, wire service reports speak of imports right now.

At the least, gold bears might be unwise to hibernate.

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