Gold Down, Bugs Up


"Gold bugs not particularly worried now that metal is back down"

Looks like the gold bugs had reason to be wary when gold broke through $1,000. But now it's back down, they're not particularly worried.

Although every chartist I follow was screaming, "Breakout!" gold churned for several days before slumping some $25.00 late last week. Spot gold closed Friday at $990.70.

Most shorter-term charts now have an ominous "head and shoulders" top appearance.

In the gold market, it seems, even carefully constructed long-term charts have weak predictive power and are prone to being whipsawed.

But the radical gold bugs—my name for the group mustered especially around Bill Murphy's Lemetropolecafé website—have long argued that the gold price is manipulated by a Washington-Wall Street alliance, which they call "the Gold Cartel." They say gold's odd behavior just reflects the repeated appearance in the gold market of a non-profit-maximizing outside seller.

This much-derided, long-standing contention looks a lot less paranoid after the massive government intervention in the financial markets during the Crash of 2008.

But Bill was not especially disturbed by last week's closing action. He defined $91 in the gold bullion Exchange Trade Fund SPDR Gold Trust ETF and $39.80 in gold share Exchange Traded Fund Market Vectors Gold Miners ETF as being the danger levels. Both closed well above these levels on Friday.

Similarly unperturbed is The Gartman Letter, which reportedly has a strong following among professional money managers. TGL is holding gold, but hedged against the euro and the UK pound.

Curiously, the most optimistic service currently is the conspiracy-oriented Lemetroplecafe. This has always laid great stress on the condition of the physical market as demonstrated by the local price of gold in key buying counties.

Most gold watchers would be surprised if this down move reversed into a short squeeze, with a resulting price spike. But it may.

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