The Gold Bugs Are Cheerfully Rampant

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Peter Brimelow

May 17, 2010, 12:20 a.m. EDT · Recommend (5) · Post:

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Gold has bugs gasping and gloating

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GM's tough sell

By Peter Brimelow, MarketWatch

NEW YORK (MarketWatch) -- Gold reached a record high Friday and then recoiled. But this seems not to have bothered the gold bugs a bit: They seem cheerfully confident of new highs to come.

Bill Murphy's LeMetropolecafe went so far as to deride Friday's action as a "Pyrrhic victory" for the Bears. (So called for the Greek King who complained the casualties of a particular battle were ruinous). The argument: The huge selling volume seen on Friday should have done more damage. Murphy's group of radical gold bugs has long argued that the gold market has been manipulated by an alliance of public and private interests -- but that they would ultimately lose their grip.

A key reason for the gold bugs' cheerfulness: the striking recovery of the gold shares on Friday. The NYSE Arca Gold Bugs /quotes/comstock/10t!hui.x (HUI 475.41, -12.06, -2.47%) and Phlx Gold Silver Index /quotes/comstock/10y!i:xau (XAU 179.33, -4.47, -2.43%) indices actually finished positive on the day despite gold being down -- and despite the dreadful day for equities as a whole.

I reported last week that poor gold-share performance was worrying some of gold's friends. Gold shares are respected by many as good forecasters of the metal price. ( See May 10 column.)

But in fact, gold shares quietly had rather a good week. The HUI was up 7.34% and the XAU 6.94%, with gold up on the week only $17.40, or 1.4%.

Should gold go through to new highs it will be a kind of triumph for The Gartman Letter. This influential institutionally-oriented publication on Thursday bought back about half the gold positions it sold at the end of the previous week. This kind of reversal always takes a great of fortitude -- even before considering the cat-calls and jeering the move inevitably attracted from the more fanatical gold bugs. (TGL hedges its gold in several currencies, which has been a better way of holding gold for some months.)

On Friday morning, the number of gold contracts outstanding -- the "open interest"-- was reported to have risen as of Thursday's close to an all-time record, the previous high having been set all the way back on January 15, 2008. Some gold watchers find this alarming. Others maintain that records are inevitable if gold is setting records.

More clearly encouraging are the sentiment measures. Both MarketVane's Bullish Consensus for gold and the Hulbert Gold Newsletter Sentiment Index actually went down last week -- MarketVane by 3 points to 74% and the HGNSI by 14.4 points to 32.2%.

Since their 2010 ranges are 69% - 83% and 18% - 60.9% respectively, from a contrary-opinion viewpoint they appear to favor a rally rather than a meaningful sell-off.

What underpins the gold bugs' confidence is the sense that the European mess is something special. Some note numerous reports last week of strong demand for physical gold, particularly by the long-suffering German public. As Australia's The Privateer put it this weekend in a commentary entitled "The Only Port In The Storm:"

"As the history of the past decade shows, there is no substitute to Gold as money. The sovereign debt crisis will complete the lesson."

There is also the feeling that, this time, the mob is an ally. Jim Sinclair of JSMineset puts it this way:

"The risk is not the euro. It is whatever the target of the CDS [Credit Default Swap] OTC derivative gang is at any time."

The gold bugs have been complaining about predatory traders for a long time. But now, as the latter look for suspect sovereign risks to exploit, they have become objective allies.

Peter Brimelow has been an editor at Barron's, Fortune and Forbes and is the author of "The Wall Street Gurus: How You Can Profit From Investment Newsletters."

Make no mistake. The "new" General Motors Co. is strutting its stuff in the final round of a high stakes beauty pageant.

1:05 p.m. Today1:05 p.m. May 17, 2010 | Comments: 22

I believe the United States is so incredibly corrupt Government wise, Fed Reserve wise, banking wise that there is only one solution and I dare not say what I think it is. I'm not going to debate it.To American Patriot I do say it has been grand sparing in here over gold and silver but even you must admit as I admit, you have not changed me nor I you. This is where we leave it.I'm stopping the..."

- OldYeller | 1:33 a.m. Today1:33 a.m. May 17, 2010

"Peter Brimelow: Gold bugs are cheerfully rampant http://on.mktw.net/a5hSYD" 11:24 p.m. EDT, May 16, 2010 from MKTWBrimelow

"Peter Brimelow: Gold has bugs gasping and gloating http://on.mktw.net/9n8ahH" 11:52 p.m. EDT, May 12, 2010 from MKTWBrimelow

"Peter Brimelow: Near-record gold close has bugs divided http://on.mktw.net/aZ45kY" 3:03 a.m. EDT, May 10, 2010 from MKTWBrimelow

"Peter Brimelow: Bouncing Baby Boomer says we're not done http://on.mktw.net/cf7VnW" 1:33 a.m. EDT, May 6, 2010 from MKTWBrimelow

"Peter Brimelow: Head and shoulders vs. Dow Theory http://on.mktw.net/aBAk7T" 2:13 a.m. EDT, May 3, 2010 from MKTWBrimelow

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