By Jon Nadler
The deepening slump in precious metals prices continued after yesterday afternoon's close and brought values to within about $14 of the $750 mark for gold. Overnight action was sluggish at best, but several tries to bounce back to $780 were seen following reports that OPEC decided to cut half a million barrels from its daily output after all, in an effort to probe for a floor in that commodity. The cartel describes conditions in the oil market as being defined by a "huge oversupply."

Peak anxiety is replacing the peak production argument among oil bulls right about now, as the cut is seen as another case of too little/too late. The dollar remained steady near 79.50 in early going, and then rose to 79.60 on the index, and it still threatens to break 1.41 against the euro, following assessments that the eurozone economy might barely avoid a full-on recession in coming months. That being said, the ECB's Mr. Trichet offered some modicum of red meat to inflation vigilantes by pointing a firm finger towards the 4% or so price rise pressure recently seen in the region.

New York bullion trading opened under mild follow-through liquidation pressure, with gold off $4 at $772.00 per ounce. All, or almost all eyes today are on another familiar name in the hit parade of financial hits we have witnessed for the past year: Lehman. The firm announced sweeping measures designed to apply the tourniquet to the wounds it suffered as a result of the subprime debacle. While its shares got a boost following the report, the Dow was looking iffy in pre-opening trade.

Silver fell 4 cents to $11.20 while platinum broke under $1200 with a further $32 loss to $1179 per ounce. Some traders have expressed views that the $1000 mark could be in the metal's crosshairs despite having caved to 18-month lows already. Palladium dropped $5 to $225 while rhodium slipped $190 to $4510. Sentiment in the complex remains bereft of optimism as bullish news appear not to matter much at all, and the tilt is still biased towards selling among spec funds. Lots of money has been lost in the implosion and some will try to earn portions of it back by trying for the opposite side of the betting table. We could, therefore, be witnessing continuing attempts to bounce - along the lines of what was seen overnight. We just can't guarantee them.

Something else we cannot guarantee is what the newsletter writers' spin will be when the dust clears in this fall 'correction.' Many still refuse to admit it is actually happening, while some say there is nothing significant going on. Others, are angrily denouncing the event as 'criminal activity.' None of this changes the basic facts and the reality on the price boards. Mark Hulbert over at Marketwatch has taken the pulse of the gold bugs and finds some disconcerting surface propaganda in the explanations they are offering their fans of late. Mark says:

" I received a phone call Tuesday, in the wake of yet another session in which gold bullion was falling, this time to its lowest level this year.

Who, the caller wanted to know, were some of the gold bugs who were persisting in recommending gold bullion despite a two-month decline that so far has taken more than $200 off the price of an ounce of the yellow metal?

This question got me thinking about what makes a gold-oriented adviser a genuine "gold bug"?

It can't be because he has continued to be bullish on gold in the face of the decline, I realized. After all, there are plenty of stock-market timers who have remained bullish in the face of the market's recent decline, and yet I've never heard them referred to as "stock bugs."

The best answer I could come up with is that a gold bug is someone who will remain bullish on gold, come what may. Perhaps the paradigmatic illustration of this attitude came from a newsletter editor I tracked in the early 1980s, who no longer publishes a newsletter and who I therefore will not mention to spare him any additional ignominy. When asked why gold had continued to fall, despite persistent predictions that it would rise, this editor said that it was the market, not he, that had been wrong.

By this logic, of course, an adviser can avoid ever admitting he made a mistake, no matter how much money he has lost for his clients. He definitely qualified as a "gold bug."
With this in mind, I reviewed which of today's gold-oriented newsletters are edited by advisers who come closest to my definition of a "gold bug."

Several themes emerged that became telltale signs of at least gold-bug-like tendencies. One is the notion that gold's fluctuations don't really matter, since we ought to be investing in it as a long-term hedge against currency devaluation. A prominent exponent of this point of view is Richard Russell, editor of Dow Theory Letters, though he is by no means the only adviser to put forth the argument. Another is Jim Dines, editor of The Dines Letter, who calls himself the "original gold bug."

The reason this argument strikes me as evidence of gold-bug tendencies is not that I think it is wrong, but in the way that many advisers use it: The argument is far more often trotted out after gold has declined than after it has risen. When gold is shooting up in price, in contrast, we are more likely to read boasts about how much money is being made by clients who paid attention to the letters' advice and bought gold.  Continued...