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Peter Brimelow
Nov. 8, 2010, 12:57 a.m. EST
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Commodities, oui "” Rare earths, non?
First Take "º
Citi's SEC probe comes at pivotal time
By Peter Brimelow, MarketWatch
NEW YORK (MarketWatch) "” Gold goes onwards and upwards. And key letters say there are reasons beyond looming inflation.
The metal's friends must be wondering if it gets any better. The CME December gold contract rose $50.10 (2.95%) last week to close at a record high of $1,397.70. Silver, which many old precious-metals hands consider to be a purer reflection of U.S. speculative sentiment, was up even more.
What's more, gold expressed in euros managed to get above the early-September high. Gold expressed in U.S. dollars had risen substantially since then, and gold bears were pointing at the lack of progress in gold in other major currencies as evidence that the move was vulnerable. That argument has now failed.
Even the long-sluggish gold shares behaved. The ARCA Gold Bugs /quotes/comstock/10t!hui.x (HUI 558.41, +8.51, +1.55%) managed (at last!) to get above the 2008 high, achieved when gold was first briefly over $1,000; it managed a 5.3% appreciation for the week. It closed at an all-time high.
The ongoing run in gold prices has fueled growing investor interest in alternatives. Nick Brooks of ETF Securities talks with MarketWatch's Jonathan Burton about some notable products emerging in the exchange-traded funds business.
Dow Theory Letters' Richard Russell points out that the major-gold-share exchange-traded fund Market Vectors Gold Miners ETF /quotes/comstock/13*!gdx/quotes/nls/gdx (GDX 61.18, +1.09, +1.81%) is now being outpaced by the junior-share vehicle Market Vectors Junior Gold Miners ETF /quotes/comstock/13*!gdxj/quotes/nls/gdxj (GDXJ 41.26, +0.75, +1.85%)
Russell says this "indicates speculative interest is rising."
Still, sentiment indicators do not rule out gold going further. The Hulbert Gold Newsletter Sentiment Index (HGNSI) did rise during the week by 11.4 points to 55.3%, and MarketVane's Bullish Consensus for gold added 5 points to 79%.
But the HGNSI held for 26 business days at 59.2% during the run-up to the mid-October peak. And a correspondent on Bill Murphy's LeMetropoleCafe website reports that the MV Bullish Consensus "spent 12 days in the 80s in October, peaking at 85% on Oct. 14." So current levels are not necessarily vulnerable.
Plus, it's not as if gold hasn't tried to correct. It plunged over $30 on Wednesday, before recovering, and there was another frustrated breakdown on Friday.
As JSMineset's Trader Dan remarked after Friday's close: "This type of price action speaks volumes as it is indicative of strong investment demand that is obviously anticipating much higher prices ahead. Buyers are in control of gold; it is that simple."
What is happening? One common explanation: Investors are construing Fed Chairman Ben Bernanke's QE2 proposals as meaning a return to the inflation-happy 1965-1980 era.
But two recent news events suggest more specific forces might be at work. Silver's outperformance of gold really kicked in after CFTC Commissioner Bart Chilton announced Oct. 26 that he took seriously allegations of manipulation in the silver market. ( See report on Chilton's comments on silver manipulation claims.)
And after last Tuesday's elections, Rep. Ron Paul, the incoming chairman of the House Monetary Policy subcommittee, has repeated his intention to press for an audit of the Federal Reserve.
The radical gold bugs, my name for the group of bugs mustered behind LeMetropoleCafe's Murphy and the Gold Anti-Trust Action Committee, have long argued that much of the U.S. gold stock has been covertly fed into the market.
But more orthodox editors, and most financial journalists, dismissed as paranoid the idea that Washington would surreptitiously intervene in markets and waste taxpayer property to skew prices to the advantage of a particular group in the private sector.
Well, that idea doesn't look so paranoid post-TARP. ( See April 5 column.)
What if Murphy and his friends are only slightly right "” say to the tune of a couple of thousand tonnes? (U.S. reserves are reportedly over 8,000 tonnes.)
Would anyone want to be short?
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."
With new laws set to tighten regulation, the industry has a potential public- relations and political problem on its hands.
9:13 a.m. Today9:13 a.m. Nov. 8, 2010
- oface | 5:56 a.m. Today5:56 a.m. Nov. 8, 2010
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