These days, nothing surprises me
Who is the world's largest miner of gold? The answer is enough to make old-timers do a double-take. The answer is China. Why is China so interested in mining gold? Why has China encouraged its citizens to buy gold? Why has China made it increasingly easy for its citizens to buy gold and gold futures? Why has China hinted that sometime in the future, China - not London and not the US futures market - could set the price for gold?
My own thinking runs along the following lines. As the US dollar slowly loses its treasured reserve status, the Chinese renminbi becomes stronger. Could the renminbi, sometime in the future, gain reserve status? Will the renminbi become a convertible currency? It will, the Chinese already promise it. Could the renminbi, sometime in the future, be convertible into gold? Yee gods, if that were to happen, the renminbi might become the world's strongest and most desired currency. Incredible thought? Fantasy? Absurd dream? You know something, it wouldn't surprise me. These days, nothing surprises me. Here's a thought - would China announce that " the renminbi is now convertible" just before **next year's Olympics in China? Don't bet against it. [**Editor's note: Dear Richard - The Olympics are in China THIS year. It's 2008 now, and don't forget - you've got a Dow Theory Letters 50th anniversary this year. 1958-2008]
Meanwhile, as I noted yesterday, the character of the bull market in gold seems to be changing. The change is that I don't sense any "give" in the metal. It's like some strange, invisible power is forcing the metal higher. Will gold correct? Will gold retest the 900 level? Can this steady almost eerie rise continue? And how is it that the public remains singularly disinterested? At what point will the US public drop their disinterest and "go for the gold"?
Below we see a monthly chart of the bull market in gold. How could gold, how could any item, rise from 250 to over 930 without attracting intense interest from the public? Damned if I know, but I can tell you this - somewhere ahead, rising gold will attract the interest of the public. I've never seen a rising market that didn't, at some point, bring in the public. But the higher gold rises without public participation, the higher gold will ultimately go.
I guess decades of anti-gold nonsense and ignorant propaganda has left Americans "brain-washed" when it comes to real money. It really does seem like the ultimate irony - Americans have faith in fiat junk paper - but they distrust real tangible money - gold. Americans will "get it" somewhere ahead. I'm in no hurry, and you shouldn't be either. Meanwhile, let gold "creep" higher. I continue to call it the "great stealth bull market."
Now compare the monthly chart of gold with the chart of the Dow over the same period. Uh oh, what's this? The major rising trendline has been violated. That's not good. The rate-of-increase has been halted and reversed. Any rally from here will be a rally below the bullish trendline. If we are to believe the charts, and why shouldn't we, gold is in a bull market and the Dow is breaking down.
Hey, what about silver? Silver used to be a monetary metal, in fact, the dollar was originally defined in terms of a specific weight of silver. In 1980 gold hit a high of 850 and silver hit a high of 50. Today gold is at 940 and silver sells for 16.75 an ounce. Silver seems behind gold and platinum, silver seems cheap.
My suggestion for those who want to take a position in silver is to buy either SLV (the silver ETF) or buy CEF (the closed end fund that is made up of roughly 52% gold and 46% silver). I own both, and I added to my holdings of CEF recently.
A comparable chart of CEF is included below.
Interestingly, a major article in today's Wall Street Journal did its part in keeping the public out of what may be one of the greatest bull markets in history. The headline, "How to Survive the New Gold Rush." The subtitle, "Investors Race Into the Hot Commodity. Even as Advisors Warn That Gains May Have Peaked; Beware the Tax Hit."
Thanks, Journal, for
the ignorant and prejudiced warning. And next time you put a
reporter on a subject, try and find someone who has some knowledge
of what the hell he or she is writing about!
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