Gold
I view gold as insurance and a long term holding
Richard Russell
snippet
Dow Theory Letters
19 February, 2003
Gold -- At its intra-day high (Feb. 13) of 384.50, April gold was 14.8% above its 200-day moving average. As
a general rule, when any item is 10 percent or more above its 200-day MA it's in overbought territory and due
for a correction.
I view gold as insurance and a long term holding. Here's the way I see matters unfolding.
Fed governor Dr. Ben Bernanke now seems to be the spokesman for the Fed. Bernanke recently outlined the
Fed's no-holds-barred stand against inflation. We have a "printing press" and we will use it, Bernanke
announced in an almost shocking statement. Worrying about budget deficits is out. Bernanke wants all-out
government spending (financed by the Fed) to keep this nation's economy going.
So far, Greenspan's low-interest policy has failed to ignite the US economy. In fact, the US economy has slid
into a state of sluggishness and semi-deflation. Bernanke wants new spending programs and the devil with the
deficits. And that's what I see ahead (I also believe that Bernanke will be appointed Fed chief next year when
Greenspan's tour expires).
Gold in the US is priced in terms of dollars. Along these lines, I just received that latest Richebacher Letter (800
433 1528). Dr. Richebacher starts his February report as follows -- "The Coming Dollar Crash. Entering the
New Year, the dollar's fate is definitely the single most important question for the world economy and world
investors. It is really the greatest wild card in the world economic outlook. . . The single biggest buyer and
supporter of the dollar is China's central bank. There are calls from many corners of the world that China ought
to allow its currency to float upwards, and other countries would probably feel comfortable to follow suit.
"No such calls are coming from the US, though it would help its manufacturers. This silence has an obvious
reason. A general floating of all currencies would implicitly mean the end of the dollar standard, and that would
badly hurt America's financial system by ending the capital inflows from central banks."
Russell Comment -- China's positive trade balance is now $100 billion a year. With China's huge sales to the
US, dollars continue to pour into China. China is diversifying by buying gold and euros. The lower the price of
gold, obviously the better China likes it. China and the Chinese populace have always recognized the value and
the power of gold.
China, however, has one advantage that most of the rest of the world does not have. China possesses
endless patience. China is perfectly happy to accumulate gold this year, next year and ten years from now.
China's leaders want all the gold they can accumulate without, however, boosting the price of gold unreasonably
to the upside. China knows that power goes to the nation that is an accumulator of gold. China is well aware of
the dismal history of paper currency (since China was the originator of paper currency -- Marco Polo talked
about it).
Speaking of the dollar, this is Bill's Gross's (PIMCO) comment as of January 2003 --
Foreigners now hold $7 trillion of US assets, and they will not take kindly to a devaluing of their investments.
13% of the US stock market, 35% of the US Treasury market, 23% of the US corporate bond market, and
14% direct ownership in US companies are now in the hands of foreign investors. It's a theater crowded with
foreigners, and if someone yells "Fire, Feur, or Kahi' there could be a rather crushing stampede to the exits
(quote from my old friend, Charles Almon of Growth Stock Outlook).
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