What computer operating system is your Premiere Elements 12 running on? Have you updated 12 to the 12.1 Update using an opened project's Help Menu/Update? If not, please do so.
For your immediate issue...
Whether or not the command Delete and Close Gap works is typically dependent on the content above and below the
spot where you want to delete and close gap. Manual closing of the gap (with care) with the mouse cursor may be your way.
Please review the following details on how the Delete and Close Gap command can fail.
If you have any questions or need clarification, please do not hesitate to ask.