09-Feb-06: Gold bulls already look ready to shake off Tuesday's 20 point plunge.

I don't think we've seen the highs on this move, yet. I'm still bullish for the high end of my target (US$633).

Bearish Crude Sentiment and Profit Taking in Metals Shakes Gold Market

"...at least $15 of today's oil price, of $65, was not supported by fundamentals" - Mr. Al-Naimi, Saudi Arabia's minister of petroleum and mineral resources Feb 7, 2006

A small but further crack in bullish sentiment in the oil market appeared on the heels of this comment. It was accompanied by oil-bearish weather forecasts in the US, as well as a Presidential statement regarding a recent report by the Department of Energy which suggested that a Chinese "plan" to subsidize the accumulation of oil rich assets and partner up with America's enemies in the Middle East "posed 'potential problems' to the US strategically" (implying that "China's energy demands threaten US national security" according to news reports).

But President Bush said the Chinese policy was "economically neutral." Of course, many of us remember daddy's words: "read my lips...", but maybe he's thinking, 'let 'em have it... since we're moving to other energy sources anyway! I'm reaching a little, perhaps. In any event, the statement was oil-bearish from that point of view, plus it may have doused some of the fires that have been re-inflating the war premium of late because it looked like a sort of moderation in Bush's foreign policy. In fact, as if there were concerted action, Greenspan added his own fire extinguisher in a controversial luncheon hosted by Lehman Brothers on Tuesday, where he hurled his final rate hike threat: "...markets were underestimating how far the Fed may still need to go in a credit-tightening campaign that dates back to June 2004," according to a Reuters feed announced the next day.

Apparently, according to the same story, he pinned the gold advance on an inflating war premium:

"...one source said Greenspan also spoke to a small private luncheon at Lehman on Tuesday and a newspaper reported that Greenspan spoke about soaring gold and oil prices in video remarks to investors in Tokyo... Greenspan pinned soaring gold prices on investor anxiety over the potential for geopolitical conflict and said a lack of refining capacity meant the days of cheap oil were over."

This speech raised some "eyebrows" because he spoke about the direction of monetary policy within the one week grace period of the last FOMC, even though he is no longer Chairman. My favorite part is this: "The Times of London reported that Greenspan earned $120,000 for his video appearance to a Tokyo audience."

Nice. Consider his relatively low salary at the Federal Reserve as reflecting a low time preference rate.

The deal had a back end pay off!

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