There's no fever like gold fever
Richard Russell
Dow Theory Letters
May 21, 2003
Gold -- The 200-day MA of gold stands today at 334.80. With gold in the 365 area, gold is close to 10% above its 200-day MA, gold is getting a bit "stretched" on the upside. This may mean that gold has to back off . . . consolidate . . . inhale for a while . . . Any backing-off could created a "right shoulder" for the potential "head-and-shoulders" bottom formation that I've been talking about.
If gold can remain approximately in its current area of around 365, I'd call it a very bullish performance. But gold may need a "rest."
By the same token, the June Dollar Index is selling at 93.8 today while its 200-day MA stands at 103.8. Thus the Dollar Index is stretched on the downside, and this could mean that the dollar needs a rest after its recent precipitous drop.
I want to warn subscribers or I should say direct subscribers' attention to one critical item -- our government wants you to believe that gold is just a commodity like wheat or zinc or hog bellies.
But intelligent and informed people know that gold is a currency.
They know that gold is the only currency that is not someone else's debt.
They know that gold is the only currency with a tangible value.
They know that there is no ultimate risk in holding gold which is why gold alone does not need to pay interest.
So gold is in a class by itself. There's nothing else like it. And for that reason, gold may not necessarily act like a stock or a commodity, and I'm talking about gold on a "trading basis." What I'm getting at is that probably no tradeable item on earth possesses the emotional impact of gold. Which is why we have that old adage (my subscribers from the '70s remember this),
"There's no fever like gold fever"
Gold is already up 44% from its 254 low of September 1999. But gold is now in a primary bull market, it's vastly under-owned, and it's facing freedom to buy (on June 1) on the part of a billion Chinese. Gold has a good chance of sporting a potential ETF on one of the US stock exchanges -- and this will mean that investors can buy actual gold in the same way that they buy a share of GM.
The central banks, which have around 75% of their reserves in dollars, are now losing a substantial part of their reserves as the dollar slumps. What are these poor dumb bastards to do now? They sold a big chunk of their gold reserves near the lows, and they will be too ashamed to buy any gold back. One thing they will do is halt their selling of gold. So the only thing the banks can do to protect their reserves is sell part of their dollar reserves for euros.
From the US standpoint, the great danger now is that the dollar continues to fall, and that this will force interest rates up as the market demands more return for holding dollars.
This would be all right except that the US is so debt-laden, so choked on debt that rising interest rates could trigger a panic. Speaking of debt, I just received this e-mail. NEW YORK, May 19, (Reuters) -- Credit card companies in March wrote off bad accounts at the highest rate in more than five years, a sign that consumers are under financial strain in a sluggish economy, Fitch ratings said on Monday.
321gold.com |
