Goldman Guts Gold, but Radical Bugs Calm

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"Gold's freaky Friday has a lot of commentators puzzled."

Gold's freaky Friday has a lot of commentators puzzled. But not the radical gold bugs have long argued that the gold market is manipulated.

I reported last week that the radical bugs suspected that their traditional enemy, the Large Unknown New York seller, had returned.

After gold spent last week ineffectually trying to advance above the previous week's 2010 closing high, the seller sent it reeling mid-morning Friday, down $25 in a few minutes. The NYSE Arca Gold Bugs (HUI) lost 4.4%.

The immediate cause of Friday's air pocket: news of SEC civil fraud charges against Goldman Sachs.

Because gold is supposed to be a hedge against financial-sector risk, traditional gold bugs find this action outrageously counterintuitive and absurd. But radical gold bugs, cynical charter members of the Goldman Sachs unfan club, are not puzzled.

But the technical damage done to gold on Friday does not impress some chart readers.

Dow Theory Letters' Richard Russell shrugged it off: "The daily chart of gold. . .shows a head-and-shoulders bottom. More recently, an upside breakout from the pattern. Today we have a pullback to the breakout or resistance. . .line. If gold can hold at $1,100 or above, it will be impressive."

Even the much-more-nervous Dan Norcini at JSMineset found some comfort: "Price collapsed down past the initial support line. . .before finding some buying at the second level near $1,130. This level is strong support, and the fact that it held is encouraging."

But the new conventional Wall Street bear case against gold was expressed with uncharacteristic forcefulness by the HSBC gold analyst on Friday:

"Further bullion liquidation likely as risk sentiment may drop more in the wake of the Goldman news. . .Near-term market sentiment looks bearish, and further losses are likely, in our opinion."

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