Sunday, 7 October 2007

Peter Brimelow's "Wary Gold Bugs See Several Soaring Scenarios"

Peter Brimlow is one of the better US financial journalists who has presented the case for the precious metals for much longer than most. In this intriging article he ponders the next few months in gold and gold shares when so many goldbugs have fallen away. The lack of a public fanfare as gold has reached historic highs is one of the most powerful reasons to suggest a much higher price for gold and silver in the coming months. Joe Sixpack may be about to come onboard the goldtrain to push prices higher as high gold prices gain wider publicity.

And what are my positions in gold and silver? I'm almost fully invested in the US and the UK after having diversified my holdings further. Only one of them, TMG, is causing me some concern and even that one may result in a better conclusion than it would appear.

I liked John Doody's point in the latest Financialsense broadcast in which he thought that investments in PM stocks in Dollar-based or Dollar linked economies would yield premium returns as their costs would be lower than in countries with stronger currencies. He also thinks that this point is not, as yet, recognised by the market.

Gold's time to set price records?
Commentary: Wary gold bugs see several soaring scenarios
By Peter Brimelow, MarketWatch

NEW YORK (MarketWatch) -- Could gold be "melting up"? Some letters think so.
Friday's close in New York, $10.70 above the previous week's close at $743.10, was the highest monthly close ever. (Gold briefly cleared $800 on an intra-month basis in back in 1980). The ultra-long term $US 5 X 3 Point and Figure chart made available freely by the public-spirited The Privateer Website looks stunningly handsome."

And after all, gold bugs reason, just about every other commodity price has smashed through to all-time highs recently. Why not gold?
This is the point of view of James Turk in his Freemarket Gold & Money Report, which has supplied a sophisticated assessment of gold for more than 20 years. Turk writes:
"A blow-off leg in gold is looking increasingly likely once it clears $1,000. Think about this a moment. The US dollar is now trading at record lows, with no bottom in sight. Commodity prices are soaring, with wheat at over $9 per bushel and crude oil looking increasingly well supported over $80 per barrel.
Gold is rising against all the world's currencies, indicating that fiat national currencies backed by nothing but promises from over-indebted governments are becoming increasingly doubted. Britain just experienced the world's biggest bank run since the 1930s ...We should be mentally prepared for the possibility that gold exceeds $1,000 within the next few months, and then just keeps climbing to a blow-off high.
"How high? A doubling of the gold price has happened before in blow-offs like the one I am describing, so $1,500 or more is not out of the question."
Sentiment indicators don't rule this out. True, MarketVane's Bullish Consensus for gold jumped 3 points on Friday to 90%, which is the highest since May 2006 - when gold made its previous recent high. On the other hand, back then gold spent a full two weeks gamboling happily with confidence in the 90s.
Furthermore, letters with a direct commercial interest in the public's appetite for the gold story are complaining.

Bill Murphy, whose Le Metropole Café Web site depends on subscriptions, laments: "What is even more remarkable is the lack of enthusiasm over this coming historic move to the upside. The Café Sentiment Indicator fell to a 3 yesterday, as gold made a 28-year high on the COMEX, and so far is nowhere ... even TODAY thus far. I just heard from a veteran broker of a major Planet Wall Street firm who specializes in the gold shares. He said his 'shop was very quiet.'
"What amazes me is how many Café members, both paying and trial members, have dropped by the wayside over the years and continue to do so." See Web site)

Other much-cited evidence: the poor performance of the junior gold shares, the purest play on stock-market gold optimism. Neither the Amex Gold Bugs Index (HUI:HUI XAU,) indices of major gold shares have made new highs despite gold's performance. Reportedly, gold share mutual funds continue to experience redemptions.
The primary logical obstacle to a melt up is the possibility of intensified Central Bank sales. Le Metropole Café was pleased last week to see Wall Street Establishmentarian Citigroup, Inc. (C:Citigroup, Inc News, chart, profile, more acknowledging this possibility. It said: "Gold undoubtedly faced headwinds this year from resurgent central bank selling, which was clearly timed to cap the gold price."

Gold bugs, much scarred by two hard decades, worry that ballooning open interest on COMEX suggests a determined, possibly policy-motivated, seller is present. Nevertheless, this is a market to watch.

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I teach Film, Media and English Lit.