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Gold: The way I see it

Richard Russell snippet
Dow Theory Letters
Jan 7, 2008

Extracted from the Jan 4, 2008 edition of Richard's Remarks

[Barb's note: These are VERY difficult times, and if you don't plan to -- or can't afford to -- sign up for any of the gazillion (yawn) subscription services that have crawled out of the woodwork since the gold bull market, you must MUST sign up for Richard Russell's service [and the Harry Schultz Letter, which reminds me, it's time 4 a snippet from UH.]

RR's daily advice for subscribers is just waaaaay too good to miss. But, in all fairness to his loyal/paid subscribers I'd quite rightly get a smacked bum if I posted as many of his snippets as I'd like to. So DO YOURSELF A FAVOUR, and SUBSCRIBE. Do it NOW! $250 a year, heck, it's worth $2,500.]

Right now gold is about the hottest item around, and since many (most?) of my subscribers are holding some gold, let's check out the point&figure chart of GLD, the gold exchange trading fund.

We have the "high pole" column of Xs rising to the 83 box. I wrote previously that if GLD holds or consolidates in the top half of this high pole, that would represent bullish action. And that's just what GLD did. Next we see the consolidation pattern with a low at the 77 box and a high at the 83 box.

A few days ago GLD broke out to a new high at the 84 box. That was a bull signal for gold, a signal that I said I was waiting for. On yesterday's action, GLD advanced to the 85 box. I consider the consolidation that you see on the chart as the midway point of this rise. It would not surprise me to see GLD rise to 94 in coming months.

OK, now let's turn to GDX below, which is the ETF for the gold shares. First, note the three declines, the first two to the 32 box and the third decline to the 33 box. These are what I call "wipe out" declines. They served to take a lot of worried people out of the gold stocks and out of GDX. Next we had the rising column of Xs to the 48 box. At that point GDX turned bullish.

A consolidation followed with GDX plunging once more to the 42 box. From 42, the latest column of Xs advanced to the 49 box, at which point GDX turned bullish again. Yesterday the X column continued higher to the 51 box. The final breakout would come if GDX can hit the 53 box. As matters stand now, the upside "count" for GDX is 70.

My own instinctual feeling is that if gold can rise above 900 and stay above 900, then GDX and the gold shares will really take off on the upside. The average mining cost of producing gold is around $400, so with gold at above 800, gold mining becomes a profitable business. Why have the gold mines been so sluggish up to now? My take -- I don't think buyers thought gold could or would hold above 800. That fear has now been resolved.

Remember, gold hit a record high of 850 back in January 1980. Now, 28 years later, that 850 high has been bettered. The power of gold being bottled up and held back for 28 years has finally been released. The most exciting part of the gold bull market should lie ahead. At any rate, that's the way Richard Russell sees it here in the year 2008.

lots more follows for subscribers...

Jan 4, 2008
Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters

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