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The last word on gold...

Richard Russell - snippet
Dow Theory Letters
Jul 12, 2007

Extracted from the Jul 11, 2007 edition of Richard's Remarks

July 11, 2007 Gold -- A ton of talk about gold fills the Internet every day. But the last word on gold is spoken by the charts, and the P&F chart is what I term the basic chart, the one that eliminates everything but the price action. Below we see a chart of gold in terms of the ETF for gold or GLD. This is a one-point three-point reversal chart. That means that every box of the chart equals one point on GLD and only rallies or declines of three points or more are depicted.

The last trend on this chart is bullish, and that trend remains. GLD would have to decline to the 62 box to turn bearish. In June, GLD declined to the 64 box (6 on the chart), but since then GLD has rallied to 65.61 as of yesterday's close. The big upside breakout would come if GLD can advance to the 69 box.

The bullish "count" or price objective for gold is now 85. This would be a sensational move if it occurs. The "count" on P&F means that the technical requirements are there and are in position so that the "count" or projection can occur. There is no guarantee that the projection will occur, it simply means that the item is technically capable of reaching the projection. In bull markets, bullish projections have a good chance of materializing.

While I'm on P&F talk, below is the chart the whole world is watching. It's a P&F of the US Dollar Index. And as you can see, the dollar is flirting with a potential breakdown to new lows. If the USD drops to 80 and then lower, nobody knows how much weaker the dollar may become. If the dollar continues to sink, US interest rates will automatically tend to move higher, since buyers of dollars will demand more interest in return for holding a weak currency.

Of course, the last thing the wobbly US housing world needs is higher interest rates. So it is highly important for the dollar to hold here.

Russell on Housing -- Wall Street may be able to bail out of the subprime mortgages that certain outfits stupidly loaded up with. But who's going to bail out the 'little people" who took on the mortgages and at the same time had no way of making the payments? The answer is that nobody is going to bail out the little people. They're on their own.

So what's going to happen? There's a huge split between the wealthy home owner and the little guy who's living on the edge or just below it. The wealthy, even if they make a mistake, have money enough to allow them to sit with their mistakes. Not so for the little guy who can't hold on -- he'll be forced to sell.

This, in time, will crack the whole pricing structure of the housing industry. As inventories build, and as an increasing number of home-owners or home-speculators get pressed to the wall, prices will start to give. When prices sink at the margin, it's only a matter of time before the price-structure of the whole housing industry sinks lower. This is all the more true, since housing today is far, far above trend.

At any rate, that's the way I see the housing picture. And the work-out is going to take time, a lot of time.

lots more follows for subscribers...

Jul 11, 2007
Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters

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