From today's Gartman Letter...... (8-26-09)

"Concerning the precious metals, firstly let’s draw everyone’s attention this morning to the chart of gold predicated in Indian Rupees at the upper left of p1. this morning. This is a wonderful bull market; that is Indian investors have wanted consistently over the course of the past four years to divest themselves of Rupees and to invest themselves instead in gold, for the price of gold in Rupee terms has gone from IR17,000 to IR 45,000 presently, with a high of IR 50,000 made earlier this year. India, as everyone knows, is the world’s largest user of gold, taking it in for jewelry purposes, for dowry purposes, for industrial purposes and of course for hoarding purposes. As goes Indian demand, so goes global demand, and as goes the price of gold in Indian rupees, so too should go the price of gold in EUR terms, and in terms of the US dollar and in terms of most currencies generally.

Concerning gold sales by the “legacy central banks” of the world that are signatories to the Gold Agreement, total gold sales thus far this year are only 144 tonnes so far in the fifth year of the latest agreement. This is… or shall be unless something truly amazing is to happen in September… the lowest sum of gold sold during the Agreement’s existence and under the Agreement there are still 356 tonnes of gold that can still be sold before this year’s “Agreement” expires at the end of September.

According to a press released by the World Gold Council, "the ECB and France continued to be the leading sellers of gold, but sales trends demonstrate a falling appetite by all member countries to sell gold reserves." It is hard to argue with the WGC’s statement, and so interest shall turn to next year’s accord, under which sales by the IMF are almost a certainty. It was recently announced that the IMF could… and probably would… sell just over 400 tonnes of gold from its reserves to create the liquidity needed by the Fund’s constituent states. No one has admitted that this shall be the way the gold shall be sold, but we suspect it shall be announced in one, or two or perhaps three large oneoff “swaps,” with the Chinese taking the gold in an offmarket transaction so as not to disturb the price’ trend nor cause “problems” for the market generally.

Just to be certain that everyone understand how the “Agreement” works, the third “agreement” begins October 1st and extends for several more years… five we believe… covering the original fifteen signatories to the 1st and 2nd “”Agreements” … including the ECB and the “legacy” national, central banks of Belgium, Germany, Ireland, Greece, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland, Sweden and Switzerland … and now including the national banks of Slovenia, Cyprus, Malta and Slovakia. The IMF has not yet signed the Agreement, but it is expected that it shall once a few minor details are ironed out.

As seems evident from the chart of gold this page in US dollar terms, the “battle” between the bulls and the bears is being fought over a smaller and smaller battle field. The Bears keep gold from proceeding higher, waging their pitched battles at progressively lower levels all year long, fighting firstly just above $1000, then fighting valiantly in June at $990 and then fighting again earlier this month at $970, and fighting again yesterday and late last week at $955. On the other hand, the bulls fought and defended… successfully… $720 in November of last year; then fought for and defended $810 in January; then $880 in April; then $905 in early July and $930 recently.

Like trench warfare in World War I, the battles are pitched and bloody, with less and less geography being given up or won. Eventually, one side shall prevail over the other, and as in great battle fought hand-to-hand, the side that losses shall turn tail and run. Almost always, in the case of the capital markets, the new trend shall be that which prevailed before the trench-fighting developed, and in this case it means that the Bulls shall vanquish the Bears… eventually. Keep an eye then upon gold prices in EURs and gold priced in Rupees, for if gold starts trading upward through €670 [Ed. Note: Gold is trading €661.50 as we write.] and upward through IR 47,000 we, and others, will be much impressed."