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Unknowable. . .

Richard Russell
Dow Theory Letters
Feb 16, 2004

Extracted from the Feb 14, 2004 issue of Richard's Remarks

I've been thinking about gold's action. The base metals such as zinc, lead, copper, have been surging higher. Not so with gold. The reason, I believe, is that the base metals are used in manufacturing whereas gold really is not used except in jewelry. Much of the base metal "blow-off" action is based on massive buying by China and also by the inflationary action of central banks printing currency in huge amounts.

I do believe that gold is being quietly accumulated by large interests, but this accumulation is occurring for safety reasons, not for manufacturing reasons. So gold and the base metals tell a totally different story.

Next, I ask myself -- Suppose I'm correct, and the stock market is in the process of topping out. If that happens, there's going to be a lot of fear and a lot of damage created. With the huge amounts of debt built into the US economy, if the stock market tops out and business turns sour, there's going to be a rush to safety.

When Americans become frightened, they now think of safety in terms of dollars, not gold. If the stock market turns down and people become frightened, their first reaction is to sell their stocks and turn to cash, dollars. This could even pressure gold. I don't know if it will but it could pressure the metal. It could also pressure the gold shares, since gold shares are common stocks.

However, if the bear takes hold again in the US I believe the world view of the US economy could change and change drastically. This could in turn impact the dollar, since the dollar is the US currency. The dollar over the last two years has lost one-third of its value against the euro. If the US stock market tops out we could see almost a panic by international investors to get out of dollars.

Now remember this -- most of the paper currencies of the world have US dollars as their reserves. Thus, if the dollar starts to fall apart, this will bring up questions about the actual worth of ALL central bank-created paper currencies.

Thus, if the stock market turns down and the bear market takes over again, the implications for the US, the world, stocks, fiat currencies, gold, gold shares, are truly unknowable. I don't know how it will all develop and neither does anyone else.

But I do know that I must have a certain portion of my assets in gold and gold shares. And I must have some portion of my assets in dollars and in euros or some other non-dollar currency. As far as real estate is concerned, I'll keep my wholly-owned (no-mortgage) home.

If I'm correct, and the US stock market is in trouble, then exactly how it's all going to develop is, again, unknowable.

Will the market slowly erode, then unravel a month, six months or after the Presidential election?


Or will trouble start almost immediately, in the face of today's extraordinary bullishness?

Unknowable. . .

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Richard Russell
Dow Theory Letters

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