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Richard Russell snippet
Dow Theory Letters
Mar 1, 2010

March 1, 2010 -- The IMF is about to sell its remaining hoard of 191 tonnes of gold. China has far less in gold reserves than it would like, and I wonder whether China has not already negotiated to gobble up the whole IMF offering.

The US has 8000 metric tons of gold. Some like Jeremy Siegel of Penn's Wharton's School, think we should sell our gold. But even the thought of the US selling its gold would drive the price down. It would also be blaring signal of US weakness. The president can authorize the Treasury to sell US gold but that hasn't happened since 1979. But even if Obama authorized the sale of US gold, he couldn't spend the money on health care or defense or anything else. US law requires that any funds received from the sale of gold must go to paying down the national debt. Another thought is that even if all US gold was sold, it wouldn't make a dent in the US's intimidating $12.3 trillion debt.

The question is asked, the Treasury now values its gold at 44 dollars an ounce. Why not mark US gold to market -- which would be over $1100 an ounce? The Russell opinion is that somewhere ahead that might happen. If Treasury gold was marked to market, the national debt would look a lot less formidable. Of course, if the US revalued its gold, the Fed would object, since such action would fly in the face of the Fed's long-standing strategy to denigrating gold while boosting the legitimacy of their fiat money.

The question I receive most frequently is this -- "What should I do with cash?" Everybody is worried about losing purchasing power and with T-bills offering zero or negative return, what do you do with money? The idea is to invest it in something that is not declining in purchasing power. For this reason, I believe many puzzled investors are buying supposedly "safe" dividend-producing stocks like Abbot Labs, Proctor, J&J and Coke. But we're in the "bear zone," and as I see it, virtually all stocks will be heading down over time. Even if a given stock is doing well, declining price/earnings will send that stock lower.

For those who give up on the perfect answer, one avenue is gold. Gold will always represent wealth, but if gold declines in dollar terms, it will be losing purchasing power. One might buy one of the PIMCO funds. The bunch at PIMCO understand money and safety, and I like their judgment and philosophy.

Everybody is betting against the euro, and I think the anti-euro trade has become too popular and overdone. Which is a good argument for staying in dollars for a while. What about CDs? They're insured by the government up to $250,000. I think money placed in CDs at one or more banks makes sense, but it's a clumsy way to tie up money. Over all, I think I prefer gold. Gold is outside the system, and, as you know, I don't like or trust the system.


Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters

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