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Richard Russell snippet
Dow Theory Letters
May 2, 2011

April 29, 2011 -- One of the questions that I'm most frequently asked is this: "Russell, do you think the US government will call in all the privately-held gold, just as Roosevelt did in 1933?"

I've thought about this at length, and I've arrived at what I believe to be the correct answer. The answer is -- No, the government will definitely not call in the gold. The simple reason is that a tremendous amount of gold is held in very powerful hands. Gold (GLD) and gold bullion is held by pension funds, university endowment funds, large powerful hedge funds, corporate reserves, and state treasuries. Note the two paragraphs below.

AUSTIN - "Fearing unstable international financial markets and the possibility of high inflation, Texas' higher education investment managers have bought more than $500 million in gold.

"The gold purchases represent only 3 percent of the University of Texas Investment Management Co.'s $22.3 billion in investment funds, but it indicates how deeply the fund managers are concerned about the global financial future."

In other words, my thesis is that gold is now in such powerful hands (much of it even political) that there's no way that the US government would call in gold. Furthermore, what purpose would it serve if the US did call in the gold? In 1933 Roosevelt called in privately-held gold and then raised the price of gold from $20.22 to $35 an ounce, this in an effort to reinflate the depression-laden economy.

Gold Note -- China has reserves of $3 trillion, of which almost half is in dollar denominated items. China is now the world's biggest producer of gold. And the Chinese government is going all out to increase its production of gold. China also is encouraging its people to buy and accumulate gold.

Against it's huge ($3 trillion) reserves, only 1.7% of China's reserves are in gold. China is on a diversification program to increase its tiny reserves of gold. It is thought that China wants at least 10% of its reserves in gold. This means that China is on a massive gold accumulation program.

My thought is that there is a "Chinese put" under gold. Whenever gold corrects a bit, China is there loading up on whatever is available. Other central banks are doing the same thing.

Gold is held in strong hands, big money buyers, central banks, large pension funds. This is not true of silver, which I believe is held in many speculators and quick-trade operators. Thus, silver is in weaker hands than is gold, and that's an important difference.

With its huge cache of reserves, China is also buying all the energy supplies that are available. If it's a natural resource, China is out there waiting to buy it.

Meanwhile, the US is asleep, spending multi-billions in an attempt to keep the "Great phoney "American standard of living" intact. In China, the long view and patience rules. In America, politics and short-sightedness rules.

Precious metals note -- Silver has been rising parabolically, a move that is always potentially dangerous. Silver is also deeply overbought, having risen 8 out of the last 9 months. This is not true of gold, which has risen at a much more even and slower rate. China and many central banks are accumulating gold, but they are no accumulating silver.


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

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