Peter Brimelow: Something still stirring in precious metals pond

By Peter Brimelow
MarketWatch.com
Monday, February 16, 2009

http://www.marketwatch.com/news/stor...

NEW YORK -- Something was indeed stirring in the precious metals pond, as I reported a week ago. Key investment letters say it still is.

With some wild swings, gold gained about 3% on the week, closing Friday at $941. The Philadelphia Gold and Silver Index (XAU) picked up 4.8% to 130.88. The Amex Gold Bugs Index (HUI) added 1.36% to 311.16. The stock market, in case you missed it, lost ground.

Technicians were impressed. Long-term chartist Martin Pring is deflationary-minded at present. Two weeks ago, he remarked that if certain trend lines were broken, "I would be dragged kicking and screaming into the bullish camp." But now he simply says in his recent weekly Intermarket Review: "Not much to add to my recent bullish comments. Both the metals and shares recently broke out of giant patterns. ... With our Global Gold Index at a new all-time high, enjoy the ride!"

Pring also flags a powerful conceptual reason for the gold move. Discussing a chart of the inflation proofed Treasuries, and using the iShares: Lehm TIPS TIPT as a proxy, Pring says: "Here we see the inflation protected bonds, or TIPs. Who needs these in a deflation? But look, the price just broke to the upside ... and volume is expanding! When we look at the longer term we see it's still in a primary bear market. ... However, this week's breakout suggests a turn is likely."

In other words, the bond market is getting seriously concerned about inflation.

The Privateer, being Australian, is even more direct in its weekly remarks: "Why is gold going up? It is certainly not in spite of the global mania for bailout programs now sweeping the world. It is BECAUSE of these programs. The more 'liquid' the global financial powers that be make their money -- by creating it in ever larger swathes -- the more they run the risk that the world starts to look elsewhere for a viable and trustworthy way to exchange goods and services."

The Privateer's invaluable $US 5X3 point and figure chart has now broken above its last downtrend, although its proprietor would like more progress: "This week the chart got up to and just above the second of the two downtrends. The 'poke' above the line which came with gold's close above $U.S. 945 on Feb. 12 is not yet decisive; a close above $U.S. 960 would be."

Silver, which I reported last week was exciting the gold bugs by showing unusual leadership characteristics, persisted -- rising 3.5% on the week, including on Friday despite gold's fall, and pushing the gold/silver ratio to 68.9 from last week's 69.5.

But the star of the week was the reported bullion holdings of Spdr Gold Trust (GLD). These rocketed a startling 13.7% to 985 tonnes, setting records each day.
GLD is regarded with deep suspicion by the radical gold bugs, who think the metal's price is manipulated. But at the least it has to been seen as a measure of the Western Hemisphere investment appetite for gold.

In contrast, Le Metropole Cafe monitors Indian gold imports and reports that, unusual in the past few years, the world's largest gold consumer is standing aside for now.

Interestingly, two sentiment indicators did not react much this past week. Mark Hulbert's HGNSI on Friday stood unchanged at 60.90%. MarketVane's Bullish Consensus actually lost a point on Friday to 78%, gaining only 3 points on the week. In serious gold moves, MarketVane excursions into the 90s are reportedly common.