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Gold bulls gather, suspiciously
CBS MarketWatch ^ | 12:02 AM ET Nov. 11, 2002 | Peter Brimelow

Posted on 11/11/2002 5:56:25 AM PST by arete

NEW YORK (CBS.MW) -- Richard Russell has finally, indisputably, said it: the gold market is being manipulated.

The septuagenarian technician, who has been publishing Dow Theory Letters for more than 40 years, has had a great year. See my July 15 column.

He's even caught the recent stock market rebound. See my Oct. 14.

But he thinks it's a bear market rally -- and was beginning to worry about it this weekend. (Of course, he worries a lot).

Long-time Russellologists have been sensing for some time that their oracle was getting interested in the widely rumored gold manipulation hypothesis most forcefully advanced by Bill Murphy's Le Metropole Café.

Thursday, after gold started strong and was driven back below $320 an ounce, Russell took of the gloves:

"It's obvious that someone, some group, somebody, does NOT want gold above 320. Who the hell are they? Is it the Fed that wants to cover up its frantic attempts to reinflate? Is it the gold-mining companies that are still hedged and therefore don't want gold to rise until they can get rid of the hedges? Is it the Commercials who are net short? Just who are they?"

But Russell takes the long view -- maybe that's the advantage of age: "Look, I believe gold and gold shares are in the early accumulation phase of a bull market... [I] tell subscribers, 'Use this area to accumulate whatever gold and whatever gold shares you want to hold. Take this obvious gold manipulation as a chance to buy gold at what I consider dirt cheap levels.'"

Russell's long-standing view: all such attempts to control market forces fail. Eventually.

Commenting on Friday's action, Russell wrote: "Gold now on a 'buy' signal, being well above its 50-day M[oving] A[verage]. Nevertheless, the resistance to gold moving higher is incredible. You can almost feel it."

Actually, it didn't take much "feeling." The end of the week saw a huge COMEX volume spike, with kamikaze sellers crashing onto buyers, so that, after a lot of smoke and flame, the actual price barely moved.

One persistent rumor is that major banks, notably JP Morgan Chase, are in trouble with their gold derivatives positions, and that their death throes are bloodying the waters.

If the great 1990s bubble saw market manipulation, above all with official collusion, the resulting scandal will dwarf Enron.

Meanwhile, Mark Hulbert reports a remarkable jump in the bullishness of the gold timers that he follows -- 57.69 percent invested. Many gold-timers have mechanical, trend-following systems. But this is in sharp contrast to their reluctance to get on board when gold rallied earlier this year.

In response to my prodding him Sunday night, Hulbert wrote:

"I can't be certain about my categorization of the gold timers into the trend followers vs. fundamentalist camps. Some don't divulge their methods, for example. And there are some technical approaches that I'm not sure about -- e.g. is [Bon Prechter's super-bearish-on-gold] Elliott Wave a trend-following approach?"

"Qualifications aside, we follow 13 gold timers for the daily updates to our gold sentiment index. I classify seven of them as trend followers, of which four are outright bullish, a fifth is 50 percent invested, with the final two bearish. Of the 6 fundamentalists, five are bullish and one is bearish."

Hulbert is an instinctive contrarian. But this consensus is impressive.


TOPICS: Business/Economy; Crime/Corruption
KEYWORDS: crash; depression; economy; fraud; gold; investing; manipulation; recession; silver; stockmarket
"It's obvious that someone, some group, somebody, does NOT want gold above 320. Who the hell are they? Is it the Fed that wants to cover up its frantic attempts to reinflate? Is it the gold-mining companies that are still hedged and therefore don't want gold to rise until they can get rid of the hedges? Is it the Commercials who are net short? Just who are they?"

Anyone with a vested interest in keeping people invested in paper assets which they control.

Richard W.

1 posted on 11/11/2002 5:56:25 AM PST by arete
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To: arete
Anyone with a vested interest in keeping people invested in paper assets which they control.

Exactly. That's why one of Russell's possible answers:

Is it the gold-mining companies that are still hedged and therefore don't want gold to rise until they can get rid of the hedges?

makes no sense. If gold mining companies were trying to unwind it would create upward pressure on the price. Selling more in order to bide time to get out of hedges would be counter-productive, to say the least.

2 posted on 11/11/2002 6:35:52 AM PST by Deuce
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To: Deuce
Excellent point.

Richard W.

3 posted on 11/11/2002 6:48:44 AM PST by arete
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To: Deuce
The same argument could be made regarding the bullion banks short position (but I disagree with that argument). The way I think of it is: When you have a large short position (of market moving proportions), you need to unwind it slowly. It can sometimes require you to sell short further in order to cap price action. What you are trying to do is avoid allowing bullish momentum to build that would draw more longs into the market and create even greater upward pressure.
4 posted on 11/11/2002 6:50:49 AM PST by Soren
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To: arete
This kind of - buy gold - article comes along with appaling frequency. The last one I saw and was tempted was when it was $540 and could go nowhere but up. Then it was $380 and was on its way up. Way up to $320 now and still heading up.
5 posted on 11/11/2002 6:56:56 AM PST by KeyWest
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To: arete
No, it's the UFO guys. They definitely don't want people to hold gold cause they need it for their anti-grav machines.

Puh-lease.

6 posted on 11/11/2002 7:12:21 AM PST by LS
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To: KeyWest
"Take this obvious gold manipulation as a chance to buy gold at what I consider dirt cheap levels"

Translation: Everyone go out and buy gold and drive up the price so I can get the hell out of this loser market.

7 posted on 11/11/2002 7:18:58 AM PST by robertpaulsen
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To: robertpaulsen
You are exactly right. Based on past touts like this article, the smart money is to short gold.
8 posted on 11/11/2002 7:27:00 AM PST by Nephi
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To: Soren
Agreed. Such strategies, however, should, theoretically, always fail under bullish fundamentals---at least that's true if the shorts are just "some other player". If the shorts are "the man" he may succeed in creating his own reality for quite some time.
9 posted on 11/11/2002 7:28:09 AM PST by Deuce
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To: Deuce
The hedging programs of gold mining companies are incredibly complex, and could well put downward pressure on prices.
10 posted on 11/11/2002 8:40:19 AM PST by GovernmentShrinker
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Comment #11 Removed by Moderator

To: KeyWest
appaling frequency

Did you mean appalling freakweensy?

12 posted on 11/11/2002 8:47:32 AM PST by MeneMeneTekelUpharsin
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To: arete
No manipulation on a grand scale. This tends to lend credibility to the premise that we are at the beginning of a major deflationary cycle. The price of everything is going to drop. I don't like it and don't advocate it, but it is probably going to happen. Japan is already going through it and we're going to follow. As prices deflate, it feeds on itself causing even more deflation and subsequent economic destruction, then war.
13 posted on 11/11/2002 8:49:36 AM PST by MeneMeneTekelUpharsin
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To: arete
Actually, the gold mining companies, some of which were hedged out for as much as three years, have been steadily buying back their positions and winding them down. The figures are available and encouraging.

There is a shortage of physical gold buyers at the moment, but that's mainly because it makes more sense to own liquid and easily negotiable gold contracts rather than physical gold. India buys physical gold, but they usually stop buying when prices rise, which has been the case recently.

It seems likely that there are still manipulators. The Fed probably WAS involved under clinton, although it's not clear whether it still is. Maybe they have decided that they can't afford to stop manipulating once they started, although in the end that scenario is bound to lose. Probably JP Morgan is involved, and maybe Robert Rubin and Morgan Stanley.

I agree that gold is finally in a long-term bull market, but it still needs to break through the resistance at 330. I expect it will try again soon.
14 posted on 11/11/2002 9:04:44 AM PST by Cicero
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To: Deuce
I agree. I think it will fail ultimately (which is one reason I am long gold stocks), but it could take a while given the enormous resources available to those trying to suppress the price.
15 posted on 11/11/2002 9:48:11 AM PST by Soren
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To: Nephi
Why is it that folks who would readily ignore a "hot tip" on a "sure win" stock from any analyst, no matter how respected, would salivate over a "hot top" on a "sure win" gold position from another analyst of equal repute?

I generally stay away from any touts, because the touter always has more to gain from the tout than the toutee.

16 posted on 11/11/2002 9:53:22 AM PST by Poohbah
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To: Nephi
"Based on past touts like this article, the smart money is to short gold."

So are you short? I don't know. The only thing I am sure of is that gold will either go up, down, or stay the same.

I guess I'll continue to keep about 5% invested in gold as a hedge, but I am not going to start betting the gold market. Pretty sure to lose money that way.

17 posted on 11/11/2002 11:44:44 AM PST by monday
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