Gold bugs bruised but buoyant (again)

NEW YORK (MarketWatch) — Another tough week for gold bugs. But they’ve survived tough weeks before in this decade-long bull market. And now they see vindication in unexpected quarters. 

Although the December gold contract GC1Z +1.06%  did reach a three-week high of $1,696.80 in Asian hours early last Monday morning, bouts of selling had slashed over $90 off by Thursday. A rally on Friday enabled December gold to close down $70.10, or 4.3%, on the week at $1,636. 

Gold shares did much worse. The NYSE Arca Gold Bugs Index XX:HUI +1.73%  showing a weekly loss of 6.88%, a retreat from the edge of an upside breakout above the post-September decline trend a week ago. ( See Oct. 3 column. ) 

Overall, this action was something of a triumph for the respected, institutionally oriented service, The Gartman Letter. It cut half of its large gold position very early on Tuesday, blaming poor momentum and expectations of forced selling, possibly from distressed hedge funds. It thus avoided much of the decline. Goldbug websites promptly started muttering that the invariably well-informed Dennis Gartman had been told something. 

In fact, this week saw unprecedented commentary from unusual sources on gold’s behavior. Most astonishing of these: a column in Saturday’s London Financial Times by U.S. Editor Gillian Tett. She actually attended the fall meeting of old-line Gold Bug outfit, the Committee for Monetary Research and Education (CMRE), on Thursday and listened to the speech by radical gold bug Gold Anti-Trust Action (Gata) Committee leader Chris Powell. 

She wrote: “I think … it would be foolish simply to deride or ignore Gata. … Some of its points have at least a grain of truth. Even if you find it hard to believe that central bankers would be dastardly enough to create a plot — or competent enough to do what Gata claims — the fact is that global commodity markets are pretty murky, central banks are often opaque and Western rhetoric about ‘free’ markets is often hypocritical.” (Read article, “Is there a shadowy plot behind gold?” ) 

I say “ah ha!” to this. I’ve been writing about the gold conspiracy theory on Market Watch since I started here 2002. (Greatly to the credit of the MW editors — other employers balked). For example, see my Nov. 11, 2002, column. 

 

Almost equally astonishing for those who know the gold world: the suggestion by veteran gold-fund manager John Hathaway in an interview on King News that “you kind of have to wonder if the government in Europe or the European Central Bank didn’t want gold to be on the defensive because of all of these announcements about a lending facility. ... The last thing they want is for gold to be rocketing in the face of that.” 

Hathaway has historically steered clear of this controversy. 

Readers are probably more interested in whether money is to be made in gold in the reasonably near term. Here the sentiment indicators are unusually clear — and positive. 

On Friday evening, the Hulbert Gold Newsletter Sentiment Indicator (HGNSI) turned in a second day at negative 13%. Previously this year, there have been three pairs of days in negative territory — although never this low. All were associated with important bottoms. 

The HGNSI has not actually been lower since gold’s emergence from the late 2008 crash. (The all-time low, many years ago: negative 31.25%.) 

MarketVane’s Bullish Consensus for gold, a much more volatile indicator, slipped to 64% on Thursday. This was also the low after the September slump. In the January break, the low was 62%. 

Of course, if there really is a determined and powerful seller out there, recovery may be delayed. But the radical gold-bug website LeMetropoleCafe was reporting very high gold premiums in India on Friday morning, and very positive comments on import prospects from Indian gold-market sources (the peak buying season in India is starting now). 

The website remarks that holding the gold price down here will take a lot of physical supply. 

Counter-intuitively, could a calming of the Euro crisis — and consequent reduction of Official-Sector jealousy of alternatives — take the pressure off gold? 

Source; http://www.marketwatch.com/story/gold-bugs-bruised-but-buoyant-again-2011-10-24