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DJ MARKETWATCH VIEW: Gold Watchers See Positive Signs On Outlook

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Mon Feb 07 08:28:52 2011 EST

   By Peter Brimelow
   A DOW JONES COLUMN


  Has gold turned the corner? Gold watchers see several positive signs.

  Gold had its first up week of the year, but Friday was a disappointing day. A
spectacular rise on Thursday, $20.90 in the CME April contract, broke the
downtrend that set in at the end of last year. But a further rally attempt
fizzled and April gold closed down $4, on low volume. Both gold and gold shares
(as represented by the Arca Gold Bugs Index) seem to have broken their New Year
downtrends--but strong confirmation was tantalizingly lacking.

  However, another part of Friday's market activity greatly excited two very
experienced gold followers: the Treasury sell-off.

  At JSMineSet, Dan Norcini stressed on Friday evening:

  "The big development in today's market session was the breakdown in the long
bond ... bonds have been carving out a five-week old sideways trading pattern
... the longer a market runs in a sideways pattern, the more significant the
breakout tends to be when once it occurs ... In the case of the bonds, the
breakdown was to the downside. I should also note that volume on the sharp move
lower was very heavy, always a good sign that the move is legitimate."

  Australia's The Privateer was even more direct on Saturday in a commentary
cheerfully entitled, "Look At Those Treasuries Go!"

  "Regardless of anything else going on around them, the yield on Treasury
paper is inexorably rising and the pace of that rise is accelerating ... As The
Privateer has pointed out MANY times, the REALLY BIG bull markets in precious
metals come when the yield on their 'substitute' as money--government
bonds--show rising yields and falling prices. The rising yields show an
increasing unwillingness to hold them."

  Despite Friday's misfire, the week saw other concrete positive news for gold.
It started with the influential Gartman Letter increasing its model portfolio
gold holdings on Monday. It continued with several reports of buying of
physical gold from India, both on Le Metropole Cafe, which always stresses the
premiums over world gold in the country it likes to call the world's largest
gold importer, and from Edel Tully, the gold analyst at UBS, a major bullion
dealer.

  On Wednesday, UBS published a valuable chart of an index of the bank's gold
shipments to India, clearly showing a recent surge, and offered the remarkable
comment:

  "We struggle to recall a month when our total physical sales have been
stronger."

  In fact, the reason for this is not so much India as China, as UBS makes
clear. In early December, the chairman of the Shanghai Gold Exchange revealed
that gold imports into China had quintupled in 2010, being already 209 metric
tons by the end of October, a very serious number in the context of gold.

  On Wednesday, the Financial Times published a story quoting bullion dealers
saying China imported another 200 tons in the following three months. Many
observers are amazed.

  China is currently celebrating the Lunar New Year, which lasts until
Wednesday. It is possible that this buying, while unprecedented, is highly
geared to this important holiday. But UBS reports that Chinese importers have
been seeking shipments for after the holiday.

  So it appears from a macro and a very gritty physical trade level, the
outlook for gold looks great. But will the price notice?


  (Peter Brimelow is author of "The Wall Street Gurus: How You Can Profit From
Investment Newsletters." He writes for MarketWatch. He can be reached at
415-439-6400 or by email at AskNewswires@dowjones.com.)


  (END) Dow Jones Newswires

  02-07-11 0828ET

  Copyright (c) 2011 Dow Jones & Company, Inc.