Richard Russell Dow Theory Letters 9 January, 2003
Extracted from the 8 January, 2003 issue of Richard Russell's Dow Theory Remarks
Gold -- I want to say a bit more about gold. I've beseeched my subscribers to take a position in gold and gold shares. Repeat -- take a position in gold, and if you haven't done so, take a position NOW.
I'm very much afraid that the US is going into a state of deflation. The bonds are telling me that... The economic statistics are telling me that... My "insides" are telling me that...
The US has accumulated too much debt. The US has accumulated more debt than it can handle. The situation looks increasingly as though the debt mountain is about to fall over. If it does, we will have deflation.
If we are going into deflation, then investors are going to turn to items and assets that will stand up and remain solvent under severe deflationary conditions -- under bankruptcy condition.
There's a "safety pyramid." At the base of the pyramid is gold. Gold is pure intrinsic money, gold is nobody's debt as is the junk we call "dollars" that are churned out by the Federal Reserve. [Purple cardboard].
Therefore, knowledgeable investors who want to protect themselves against deflation will "go for the gold." Gold under deflationary conditions represents ultimate safety. This is the basic reason for the move that we're seeing now as the price of gold rises higher and higher.
I heard some fool on CNBC today denigrating gold. He said that gold only goes up in the face of some news emergency such as an attack on Iraq. Pure bull shit.
Gold is rising because it senses deflation and a debt collapse. Gold is going up because big money - sophisticated money - smart money - is moving to protect itself against a potential deflationary collapse.
Note -- Subscriber are writing telling me that some analysts are saying that gold is topping out and that gold is "blowing off" and that gold will shortly cave in.
They may be right, anything can happen to anything in any market.
But the Russell view is different -- the Russell view is that gold is in a major bull market. Furthermore, gold is in the early or accumulation phase of this bull market. Further still, since this is a bull market in gold, I believe gold will go vastly higher.
Remember, I go by price action, and I don't give one damn in hell what any other analysts say. I go by what the markets tells me, and what my brain (what little brain I have left) tells me -- and they tell me that gold is in a bull market and that it is heading higher.
Incidentally, the Commercials (gold banks, hedged mines) currently have a huge short position in gold of 143,000 contracts. And they keep adding to their short position. Ordinarily, the Commercials will prevail. But this time the Commercial shorts are aligned against the primary trend of gold. The Commercials are being squeezed. They need a big break in gold to make money or even to get out of their positions. And so far, they are not getting that big break. How much longer will the Commercials continue to build up their short positions? I don't know. But once a position is taken, it has no further abililty to weaken the market. Only additional new short positions can weaken the market, since new shorts represent further supply.
