FAMOUS GOLD BUG $600 then $900 then$2,000NEW YORK (MarketWatch) -- Gold breaks sharply off multi-year highs. But the gold bugs aren't flinching, including one of the most famous.
After reaching $572.15 on Feb. 2, gold closed at $550.20 on Friday. But gold's friends are heartened by the fact that the "Bullish Consensus" tracked by respected institutional service Market Vane had reached an extreme peak on Feb. 2 and has now retreated equally dramatically, suggesting that traders are far from stubbornly bullish.
The Hulbert Financial Digest's Hulbert Gold Newsletter Index (HGNSI) is contracted on different principles, but also shows a rapid retreat in the past week. Mark Hulbert interprets this as good for gold, on a contrary opinion basis.
The latest issue of the monthly International Harry Schultz letter arrived about the time I was supposed to file this column. The flamboyant Schultz has been a notorious gold bug for four decades - notorious because of his flamboyance; he's actually very quick to trade - and his recent successes and long-term Big Thinking caused me to name him 2005's Investment Letter of the Years. See Dec. 29 2005 column
Schultz's take on gold's recent action: "Was the gold price drop last week caused by being over-touted (in the media) and overbought, and with a bearish chart parabolic curve and bearish up wedge? OR by the gold cartel? Yes! Both. The price fixers have chartists too (they run two of New York's biggest banks) and they know when any market ... is oversold, technically. So they know when to place their bets."
Schultz went on to give the clearest statement I've seen from him of the theory, widespread among investment letters but recently endorsed in a report by France's Credit Agricole bank, that the official sector has been intervening in gold and other financial markets: "They (the so-called Plunge Protection Team) subsidize the U.S. stock market when it sags to a major chart support area, which dare not break least weakened public confidence cause a crash. And they know when gold has risen to an overbought level, so they sell it short. They usually make money maneuvering for their de facto CEO, the U.S. government...They also usually make money on their gold shorts, by buying back after substantial falls. THERE IS NO FREE MARKET. U.S. government prevents markets having healthy adjustments, which correct inefficiencies ..."
Schultz remains sanguine about gold: "We had a similar gold sell-off in early December (lasting seven market days and dropping $40) but last week's was more significant as the rise went to historic highs and thereby changed people's attitudes ...This correction may also drop $40, IMO, and will be of no importance except to allow the market to work off its overbought condition. Could it fall more than $40? Markets can do what they like (as can the Plunge Protection Team) but there's technical gold support at 540, 530. 500, 490, 480 and the ultimate gold support at 460....I think 530-540 is the most likely low."
Schultz's strategy is to trade: "You should sell when THEY do, or BEFORE, if possible (perhaps via our GoldCharts R Us service.).We told GRCU subscriptions to take profits a full week before this latest fall, in bold terms..."
Schultz warns of gold "mini-crashes" - which don't sound so mini, he means 50 percent-80 percent corrections in the gold stocks.
But long-term, his view is very clear: "We're in a major gold bull market thanks to excessive bank and government credit and money creation...$600 is our next target, then $900, on the way to $2,000."