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On Gold Shares...

Richard Russell
Dow Theory Letters
April 27, 2004

Extracted from the April 26, 2004 edition of Richard's Remarks

If interest rates break out on the upside, if the dollar continues to climb -- it's going to hit everything. It's going to cause an unwinding of the carry-trade. And it could trigger a move, even a rush -- to liquidity. It's going to set off a move to get out of all "things" and into cash. And cash is what the mass of Americans don't have. The real cash, the real liquidity, is owned and held by a very small percentage of Americans. What the great mass of Americans have is things: houses, cars, junk -- and lots of debt.

Now here's the hard part for me and my subscribers. If what I see above comes into being, there's a good chance that we could see pressure on gold shares. Gold shares are really a "call" on a higher price for gold. Sure, gold is real money, sure gold will triumph in the end, but for now the investment world sees gold as a commodity, like aluminum or wheat. They don't see gold as the only real money. So we could see pressure on gold, but more probably on the gold shares. I don't know for certain that we'll see pressure on gold, but it could happen. We've certainly seen pressure recently -- although this could simply be corrective action.

Personally, I'm going to hold my gold. Holding the metal doesn't worry me. I still have gold that I've carried from the '70s. Gold is the only real money. I don't care, inflation, deflation, boom or bust -- gold is money, and I can't say that about any paper currency. I'm holding all my gold.

The gold stocks could be another story. The gold stocks depend on rising gold for rising profits. In a deflation, or even in an atmosphere where gold simply "doesn't go up," the gold stocks could do poorly. For that reason and all the reasons that I described above, I feel that subscribers must make a personal decision about their gold shares.

In the long run, I believe both gold and gold shares will win. But a lot can happen between now and "the long run."

Personally, I've decided that I'm going to sit with my gold-share position. But if I do anything additional in the gold area, it will be to buy more coins. What I care about is my total position -- but I'll let you in on a secret, the market couldn't care less whether you or I have profits or losses. The market is a law unto itself.

We're in a primary bear market, and I've said this a hundred times -- this bear market is out to hand us losses. One way or another, we are going to deal with losses. The idea in a bear market is to arrive at the end of the bear market with as much of our wealth intact as possible. At the end of a bear market, you want some liquidity, some wealth -- assets with which to start up again, and cash with which to get into the new bull market.

Richard Russell
Dow Theory Letters

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