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The Barbaric Relic

Richard Russell snippet
Dow Theory Letters
Mar 7, 2011

March 4, 2011 -- "We are in danger of being overwhelmed with irredeemable paper, mere paper representing not gold, not silver, no sir, representing nothing but broken promises, bad faith, bankrupt corporations, cheated creditors and a ruined people." Daniel Webster, Speech in the US Senate, 1833.

There's something magical, mysterious and rather beautiful about a primary bull market. The bull market in gold has been in effect for over ten years, and the mysterious part of it is the way the American people have both ignored it and damned it.

I've begged and implored my subscribers for a decade to enter the great bull market in gold. Even today, after a solid decade of higher prices, the great majority of Americans own not a single ounce of gold. And even today, after an amazing ten consecutive years of higher prices, we hear know-nothings denouncing real money, gold, as a barbaric and worthless relic of former times.

When investment "geniuses" like Warren Buffett displays his ignorance by denouncing gold, it adds little to his legacy. Warren's dad, Howard supported the gold standard). Warren Buffett's problem is that he only understands balance sheets and earnings. The value of a Picasso or a gem diamond or a bar of gold is outside Buffett's understanding. Which is sad, because Buffett's lack of understanding has kept many an American on the sidelines while gold surged higher in terms of Buffett's beloved paper currencies.

I've lived through bull markets in housing, commodities, stocks, silver, land. But in all my life I've never seen anything like the current bull market in gold. As far as many investment experts and as far as most of the media is concerned, the great bull market in gold has been a non-event and an abomination.

So much the better for those of us who recognized the gold bull market for what it was and is. The gold bull market may be the biggest money-maker of the last two or three generations.

I've written before that bull markets don't die of old age. Bull markets die of over-speculation and over-participation and thus, in the end they die of exhaustion. I've said all along that this is the way the bull market in gold will ultimately die.

So is the current gold bull market choking with over-participation and over-speculation? Hardly. This is what is so remarkable and uncanny about this gold bull market.

Last Wednesday, to the anguish and dismay of its detractors, gold closed at an all-time record high. The new high was "blamed" on the trouble in the Arab world. I don't subscribe to that theory. The fact is that gold has been creeping up, working its way higher, ever since its January 27 low.

I've directed attention to the phenomenon that gold, on all recent corrections, has respected its 150-day moving average. I said that when, on February 17, April gold leaped above its 50-day moving average, that it was probably on the way to test its record high. The red line on the chart below is gold's 150-day moving average

Today while gold is within a few percentages of its record high, I'm asked how high I think gold can climb. My retort is, "Wrong question, the real question is how low can fiat or irredeemable money fall?"

My good friends, the Aden sisters, note that back in the last gold bull market, gold soared by 24 times from its low of 35 to 850. But at that time participation in the gold bull market was very limited.

This time, gold has, so far, only multiplied five times -- from 255 to 1430. If gold was to repeat its 1970 performance and multiply 24 times, it would rise to over 6,000. But there's a difference between the two gold bull markets: This time the other half of the world's population (China, India, Asia) has been added to the mix. And this time, the very viability of fiat currencies is a part of the picture.

Russell conclusion and advice -- Stay with your gold and silver positions. The bull market in precious metals is far from over. (Hmmm, seems as though I've been saying this for a decade).

Below, daily gold over the last two months.


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

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