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Gold is eternal wealth

Richard Russell
Dow Theory Letters
October 18, 2004

Extracted from the Oct 15th, 2004 edition of Richard's Remarks

I want to write something about gold now. Here's the Dollar Index today breaking to its lowest level since last March. And what does gold do? Nothing. Why? What's going on?

People aren't looking at gold correctly. Gold is eternal money. Gold is the only money not a product of debt. Gold is pure intrinsic wealth. But when it comes to trading, as long as traders and speculators can make money buying and selling dollars or euros which pay interest, why should they speculate in pure direction by buying or selling gold. The answer is they shouldn't -- and they won't.

Wealthy investors don't buy gold because they believe gold will move higher. Even if gold moves higher these people aren't going to sell their gold. Wealthy people hold their gold until they're near death, and then they'll pass it on to their kids and their loved ones. Gold is wealth, paper money is a unit of exchange. Paper money does not hold its value.

Investors who have held gold for decades have learned this about gold. Gold can sit still for months, even years, and then it may make a huge move in a matter of months. And then it sits for more months or even years -- before making its next move.

In the 1970s gold sat on its fanny for years. Then in 1976 gold started up, and during 1978 and 1979 gold exploded higher. Following the early-1980 peak of 850, gold went into a bear market that lasted to July 1999, at which time gold hit a final low of 256. Gold hit a second bottom in March of 2001 at a price of 257. From March of 2001 to March of 2004 gold rose from 257 to 436, a rise of 70%. Which is roughly where we are now.

So if you're buying gold here for a quick profit, forget it. You're buying for the wrong reasons. But if you're buying gold as a store of value, as pure wealth, that makes sense. You may sit with your gold for six months, a year, five years. Get used to it. At the end of five years your gold will still be wealth. The stock market may have collapsed, the dollar may be in smithereens, your house may have been destroyed by termites, your spouse may have left you -- but your gold will still be wealth.

Gold stocks are another story. Gold stocks are stocks. Many are leveraged vehicles. If the price of gold goes up, the mines' costs will stay roughly the same, but the profits of the mines will surge. So when you buy a gold stock, you're buying a different animal. Gold is eternal wealth. A gold stock is a speculation on that stock rising exponentially IF gold goes higher.

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Richard Russell
Dow Theory Letters

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