Gold gets some powerful friends

Central banks got out of the gold trade a few years ago and just recently, they are coming back into that market. The main advantage that gold has over other currencies is that it can't be printed. Many see gold as a hedge against inflation and a safety net as the Fed continues to print money.

Peter Brimelow
Sept. 10, 2012, 12:53 a.m. EDT
Market Watch

NEW YORK (MarketWatch) — Fridays seem to have become toxic for gold bears.

Aug. 31st saw the metal spoil the long weekend by jumping $30.50, or 1.8%, on a CME Dec gold floor close basis. Sept. 7 saw another big jump — $34.90, or 2.1% on the Dec. contract, to $1,740.50.

The effect was to push the magisterial $US5X3 point and figure chart maintained by Australia’s The Privateer into the most bullish posture this year, smashing decisively above the downtrend line in place since last summer.

Perhaps the bears will get their rumored powerful friends to abolish Fridays! Radical gold bugs have long argued that these friends do exist.

The idea got a much-discussed airing this week in a long interview with Gold Anti Trust Action (GATA) Committee Chairman Bill Murphy on the Russia Today TV channel.

Even the eminently respectable institutional service, The Gartman Letter, expressed sympathy with the GATA bullish view of the silver market on Thursday.

The Privateer summarized the significance of gold’s move: “In a bit more than two weeks, since Aug. 22, spot future gold is up $100. Almost all of that rise has in fact come since August 30 when gold closed at $1,657.

“On Sept. 7, it closed at $1,740. Gold’s high for 2012 is $1,789, the spot future close on Feb. 23. A couple of more rises like the one on Sept. 7 and that will be comfortably taken out.”

The Got Gold Report, in a nice phrase, said: “the gold market has been as strong as an acre of garlic.” It published on Saturday in the free area of its website a useful chart-based discussion on gold in other currencies.

GotGold’s conclusion: “Clearly gold is once again gaining purchasing power in most or all fiat currencies. The charts above are irrefutable proof of it. Put simply, the collective market has been anticipating that governments would attempt to ‘print their way out of a giant debt hole.’”

Gold enthusiasts who like being lone rebels are having to adapt.

LeMetropoleCafe’s Friday wrap-up included quotations from a remarkable Bloomberg interview with the famous bond fund manager Bill Gross of Pimco which expressed a preference for holding gold: “Gold cannot be reproduced. It can be taken out of the ground at an increasing rate, but there is a limited amount of gold. There has been an unlimited amount of paper money over the past 20 years to 30 years…

“Central banks got out of the gold trade a few years ago. Just recently, they are coming back into that market…I think for the most part it is not a crowded trade yet even though the price has accelerated in recent quarters and recent years.”

These views, while quite normal for a guerilla gold bug, would have been career-ending heresy for an orthodox Wall Street not so long ago.

Another LeMetropoleCafe appearance was by fabulously successful macro-hedge fund manager Ray Dalio of Bridgewater Associates (via his latest client letter): “Gold is primarily an alternative to fiat currency and a storehold of wealth.

“The main advantage that gold has over other currencies is that it can’t be printed…deleveragings strongly favor shifts from financial assets into gold and other tangible assets.”

All this company could be unnerving. Gold veteran Jim Sinclair offers some insight at JSMineSet: “One of the weaknesses of the ‘gold writer’ community is that they seem to be always in competition with one and another for some assumed popularity.

“Early in 2000 I complained to Harry Schultz that the opinions of bullish gold commentators who knew gold was headed much higher yet constantly called tops was injurious to the market. That was the means then of gold writers competing to try and prove their advice was superior.”

Schultz, who recently retired at the age of 87, was one of the earliest, and most creative, gold bugs. He apparently brushed Sinclair’s complaint aside, saying “you cannot herd cats.”

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