Gold Bounces Back

Source:

". . .governments doing funny things is not as paranoid a concept as it seemed some years ago!"

When I last wrote on gold, the metal's very promising year-end rally was attracting attention, especially because the world's banking problems, and the response of governments, had created an outstanding macro case for gold. Needless to say, the credit crisis continues, generating even more ugly headlines recently.

Perhaps this is why The Gartman Letter, which usually cuts losing positions promptly, has hung on. Buying right at the end of last year, TGL has unflinchingly accepted its punishment, and never even posted a stop-loss level. It needs $870 to break even. A lot of gold bugs prefer the conspiratorial view that the very well-informed Dennis Gartman knows something. And certainly the move up this week has been highly concentrated in New York hours, and fast—an unusual pattern suggesting major players are, well, playing.

Traditionally, conventional gold bugs have believed that the metal's price is driven by irresponsible money supply increases. More recently, radical gold bugs have claimed that the U.S. authorities, in alliance with private interests, have surreptitiously interfered with gold for years, with a view to distorting the message it can send the financial community. They refer to this as 'The Gold Cartel.' Rapidly rising open interest—the volume of contracts outstanding—indicates a new actor is present.

Well, governments doing funny things is not as paranoid a concept as it seemed some years ago!

As it happens, Gold Money's James Turk has published a discussion of a new piece of evidence supporting the radical gold bug thesis in the latest issue of his Free Gold and Money Report—a memo to Kennedy-era Fed Head W. McChesney Martin discussing how to disguise foreign exchange market interventions. This seems to show government manipulation of markets is long-established.

Turk comments: "I have long hoped that a 'Confidential' document like this one would eventually emerge. There are no doubt countless more like it."

So the gold bugs may indeed be fighting city hall. But city hall does not look as formidable any more.

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