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Erratic action in gold

Richard Russell snippet
Dow Theory Letters
Oct 21, 2008

October 20, 2008 -- Gold is torn between two opposing forces:

The negative pressure on gold is the ongoing world commodity deflation.

The positive force on gold is the coming monster US government deficits which will probably raise doubts about the viability of the US dollar.

How big will the coming US deficit be? The official estimate is $700 billion. Forget it, the actual deficit will be between $1 trillion and $4 trillion, probably closer to $2 trillion.

In a $14 trillion economy, a $2 trillion deficit would mean that the deficit would be 14% of Gross Domestic Product.

In the past, 6% was considered a crisis percentage. In Europe the legal limit is a deficit of 3% as a percentage of GDP. Deficits of above 3% brought warnings (Italy) of a crisis.

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

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