PETER BRIMELOW
The buggiest bugs show grit about gold
Commentary: But their fears about central-bank manipulation arise again
NEW YORK (MarketWatch) -- Gold gaps down, but the bugs are grimly determined. Again.
Cheerfulness is rare among the gold-friendly newsletters and Websites. Australia's Privateer summarized succinctly over the weekend:
"Last week, gold tumbled $U.S. 35 on April 23-24. This week, gold tumbled almost $45 between April 29 and May 1 ... the U.S. dollar rallied. U.S. stock markets rebounded much closer to the levels at which they started the year. And gold kept on going down. At its May 2 intraday low of $846, gold had given up all but $6 of its 2008 gains to date. The close on the day was $858."
The Privateer's wonderful $US5X3 point and figure chart, which I have often cited, looks sad. (Although stalwarts point out that the post 2002 uptrend line is nowhere near being broken.) See chart
But Bill Murphy's LeMetropole Café group of writers continues cheerful. See Website See Sept. 10, 2007, column
The reason: their particular concept of the gold market. They believe that the upper reaches of the gold price are defined by central bank selling -- often surreptitious, sometimes very large. This selling is primarily motivated by the wish to influence opinion. The lower bounds are marked by heavy buying of physical gold by Asian countries, decisively led by India.
Ultimately the appetite of these countries, insatiable at the right price, forces the sellers to retreat -- sometimes in a disorderly manner, if enough commercially motivated short sellers have jumped on the bandwagon.
Murphy's men think this theory fits the current facts.
The current gold slide began on April 17. A LeMetropole Café contributor reports: " ... Since gold peaked on April 16th at $945.10, open interest has declined only 5,006 lots (15.6 tonnes) in total: 1.2% for a $94.20 or 11.1% decline. While it is theoretically possible that there could have been short selling of an incredibly heroic scale, by far the more likely explanation is the presence of a massive seller of physical."
"Open interest" is the total amount of futures contracts outstanding: Comex is the main U.S. exchange. If gold appetite were sliding, it would contract. Short selling would account for it not doing so on a decline. But it is possible that bullion banks are selling short against metal bought in the physical market.
Le Metropole tracks physical appetite by monitoring the price of gold in India, far and away the world's largest gold importer. On Wednesday, it reported huge premiums over world gold, indicating strong appetite. On Thursday, the Indian foreign exchange markets were closed. Friday's data, with gold down another $20, was less clear-cut, but the Website has picked up two stories from India suggesting heavy local buying.
Independently, MarketVane's Bullish Consensus for gold fell on Thursday to 68%, the lowest since July 5 2007, when gold was $655, and just starting the charge over $1,000. See Website
The Metropole theory: Gold has been a victim, not of shifting expectations, but of a deliberate secret selling binge by the official sector? Has not 2008 seen unprecedented direct action in financial markets by these parties?
The odd behavior of open interest and the clear possibility of central bank selling have not been mentioned by orthodox commentators, mostly now residing at bullion banks. LeMetropole has a theory: "The complete silence if the bullion bank commentators on this suggests that the order is well spread -- or perhaps that the purpose (financial calm?) is popular."
Popular, but maybe not possible
