From today's Gartman Letter...... (Dec. 9)

"COMMODITY MARKETS ARE FOCUSED UPON THE DOLLAR and with the stronger US dollar the commodity markets are trending downward, with the obvious greatest focus upon the collapse in the precious metals. We wish to be quite clear about things regarding the precious metals: The bull market is not over, at least not in terms of gold predicated in Sterling and/or in EURs, for as the chart this page of gold prices in Sterling shows rather clearly, the bull market that began back in ’07 has barely blipped lower. Yes gold is off sharply in terms of US dollars, having fallen from $1225 to the present $1125, or just over 8%; but in Sterling terms, the fall has been “only” 5%, materially less than that of gold in US dollar terms. All along, as we were… and are still… bullish of gold we iterated and reiterated the fact that we wished to hedge away the implicit dollar exposure that one had when one owned gold only in US dollar terms. Yes, a 5% loss from the highs is material, and in retrospect certainly we wish that we had sold everything and had gone to the sidelines, but are we happy that we owned gold predominately prices in European currencies? Absolutely. Is there a lesson here? Absolutely again.

To that end rather than blame the weakness in gold solely upon the strengthening US dollar, we shall blame it too upon the comments made last week by the Vice Governor of the People’s Bank of China, Ms. Wu Xiaoling, who said that gold had become a bubble and that the Bank had little if any interest in buying gold into this “Bubble.” This was a very savvy comment by Ms. Wu, and it touched off a landslide in gold everywhere, for the market had become convinced that China would be in buying gold for its reserve position sooner rather than later. Ms. Wu put “paid” to those hopes, dashing them in the short run and sending gold plunging. Now that the Bubble has been popped, and now that India’s purchases do not look quite so meaningful and so well timed, we can expect to see China quietly moving into the market. We’ll know that they did, however, only long after the fact.

The only other thing we know for certain is that the legacy central banks of Europe have become utterly inactive in the gold market, for they’ve not sold any material sums of gold in the past several weeks. Under the Washington Agreement, the banks, including the IMF, can sell approximately another 240-245 tonnes of gold between now and the end of next September, with the IMF having sold 206 tonnes to India recently. In the past month they’ve sold nothing into the market’s strength, suggesting either that the banks are terrible marketers or that they’ve little left to sell. There is probably a good deal of truth in both."