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Peter Brimelow: Questions about gold market manipulation and missing M3 figures

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  • cxpowell
    By Peter Brimelow CBSMarketWatch.com Monday, August 7, 2006 http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BD095B5EB%
    Message 1 of 1 , Aug 6, 2006
      By Peter Brimelow
      CBSMarketWatch.com
      Monday, August 7, 2006

      http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BD095B5EB%
      2D2E07%2D4926%2DB04E%2D65B1AAF274E0%7D&dist=rss&siteid=mktw&rss=1

      NEW YORK -- On Wednesday I received Harry Schultz's latest Gold
      Charts R Us communication, (itself an object lesson about the
      alacrity with which some of the truly veteran newsletter writers
      (like Richard Russell) have adapted to the Internet.

      Schultz's message was clear: "PS: If U don't buy gold today, go away
      & forget this mkt. Tuesday's close filled in the missing bits needed
      to give a trader's buy signal. I've never seen a day like it.
      Breakouts all over the place ... XAU in clear B/O...U can't win a
      jackpot unless u put a coin in the machine first."

      This has to be seen as a significant statement by a very experienced
      market observer. I first wrote about Harry Schultz 30 years ago.

      Gold and gold shares respectfully responded by going down for the
      rest of the week.

      This of course did not deter Freemarket Gold & Money Report's James
      Turk, who wrestles in his latest piece with the Fed's very peculiar
      decision to stop reporting M3 (cast in even stranger light by, as I
      understand it, their having eliminated the M3 archives from their
      Web site). Turk for many years maintained a "Fear Index." which was
      a ratio of M3 and the U.S. gold price.

      When last calculable, the chart of this was ominous. Turk not
      unreasonably comments: "Why does the Fed no longer want to report
      the total quantity of dollars in circulation? They know what's
      coming -- massive amounts of dollar creation to fund the worsening
      trade and federal government budget deficits."

      But Turk goes onto assert that an implicit Fear Index he has
      constructed gives him the data to solve for the gold price, which
      equates to $900 per ounce ... even though the Fear Index has climbed
      a long way, it is still below levels reached at other key low points
      in the gold market, specifically, in 1971, 1976, 1982, and 1993.
      This low level means that gold is still way undervalued."

      For what gray hair is worth, there is much in the news that reminds
      me of 1979. To me $900 does not seem outlandish, especially when
      $875, the previous fleeting top, in 1980 dollars is converted to
      today's values, at least double the price at $1,750 an ounce.

      Dennis Gartman, of the Institutionally-favored Gartman Letter,
      generally rubbishes these kinds of concerns. But nevertheless this
      past week Gartman increased his portfolio exposure to gold to about
      half, depending on how you calculate it. He also bought back a
      position in Suncor Energy Inc., about as pure a bearish Middle East
      bet other than gold that I can see.

      Technicians, however, are less enthusiastic.

      My old friend Martin Pring, whose work turns on very long-moving
      average systems, is upset by the sideways movement in some of these
      measures: "The Goldman Sachs Precious Metal Index has just
      experienced a marginal KST sell signal. ... This is important since
      KST sell signals have a high degree of probability of resulting in a
      multi-week correction ... the three previous once have only been
      exceeded once before (in 1999) during the 11-year history of this
      Index. This means that an above average (short-term) decline would
      be likely in the event that a more decisive KST sell signal is
      triggered."

      The KST sell signal is a proprietary moving average measure.

      None of this is very disturbing intellectually to LeMetropoleCafe's
      Bill Murphy, who equates gold's more sluggish performance recently
      with Henry Paulson's arrival at the Treasury from Goldman
      Sachs: "Paulson, is ... blatant about his manipulation of the gold
      price. This arrogant fellow couldn't care less about who sees what
      they are doing. Probably because he knows the cowardly wimps in the
      mainstream gold world won't utter a peep."

      If this view is correct, of course, the Martin Pring system would be
      effectively co-opted.

      Whether the Middle East can be co-opted is another question.

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