Iraq Raid Ruse Robs Gold Price of $8

November 13, 2002
By: Tim Wood

NEW YORK -- How remarkably unimaginative gold commentators have lately become. How uncommonly susceptible to guff gold investors can be.

Even the least politically astute person could figure out that Iraq was always going to sign on the dotted line for UN weapons inspections, dreams of the restoration of Nebachudnezzar's glory aside. And now we are to believe that the gold market is peopled with idiots and reporters who can’t see a stunt when it stares them in the face.

Iraq was the excuse professionals used to shake loose the competition which proved unequal to the task. The bears are still too good, even if times are tougher. It wasn’t funds that got caught long, it was main street speculators that got cold feet, driving Comex December gold down $5.80 to $318.90 from $325.40. At one stage it was driving toward $317 and worse before things improved.

Ever since George Bush began moving weapons toward Iraq and telling Saddam Hussein he was going to get his tail whipped, it was blindingly obvious America had already won the war without so much as firing a shot. Just look at what happened to oil prices the more war talk there was – they plunged along with the stocks of oil companies.

Yet the newswire services would have us believe gold fell because Saddam suddenly came to heel. Here’s Reuters carrying the party line: “Funds got caught with unwanted safe-haven positions booked Tuesday, when Iraq's parliament rejected the U.N. resolution and passed the decision to President Saddam Hussein, who holds absolute power in Iraq.” (Don't you love the "absolute power" political correctness when "dictator" would say it all...)

Tripe. Any fund that relied on a strategist who recommended gold on the basis of a declaration by the Iraqi “parliament” should be fired. Even the world’s chief dunce, according to these same agencies, warned that the Iraqi parliament was all about show business and that Saddam was where the buck stopped. Everyone knew what Saddam was going to do with the buck when it got to him - put his hands up.

“War premium”; what an insult, more insulting that it was taken hook, line and sinker by sellers.

The gallery obviously needs some reassurance that gold is not moving now for reasons of war, but because the global economy and its American flywheel are spinning slower and slower. If you want war premiums, follow oil from whence the clues were rather obvious.

To illustrate in just what a mess the US economy remains, consider the Reuters softball on Alan Greenspan’s Congressional testimony today: “Cautiously hopeful comments on the U.S. economy by Federal Reserve… buoyed the dollar but were overshadowed by the Iraq announcement.” Reuters seems not to have noticed that Greenspan is never anything by “cautiously optimistic” or “prudently admonitory”.

Of course, it’s not just Reuters, but every agency swallowing the Iraq pill. Dow Jones: “speculative players predictably bailed out of the gold market en masse on news that Iraq agreed to allow the return of weapons inspectors into the country.” No interview with these specs to ask them why they were dumb enough to load up on gold on the word of the Iraqi parliament. Predictable, says Dow Jones!

The only role Iraq played in today’s gold price plunge, was its value to shorts in scaring people out of the market.

And, contrary to reports that Tuesday’s spike was driven entirely by the Iraqi parliament’s dance of the seven veils, it was really off the back of Indian inurement to steadily rising gold prices and reports of sellers taking a beating in Japan. Of course, there was some fund buying in concert with scare mongering on Iraq.

What we saw today was selling in ignorance and it was way over done. Well done if you shorted $324; that was smart.

Take a monthly gold price chart from 1971. You’ll notice a peculiar “formation” from 1999 until now, that looks suspiciously like a teacup, complete with handle. A cup and handle is one of the rarest technical formations on offer; never again are you likely to see one so clearly as in the gold charts now. Take or leave technical indicators, it has always been reliably bullish. And who should not ride self-fulfilling prophecies?

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