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The little-noticed, little-understood bull market

Richard Russell
Dow Theory Letters
Nov 8, 2005

Extracted from the November 7, 2005 edition of Richard's Remarks

Gold -- What's that they say? Oh, I remember -- "a picture is worth a thousand words." Well, a chart is just a picture. But unfortunately, most people deal with what I call micro-charts, charts that only cover a few months usually on a daily basis. Sometime a BIG chart on a monthly basis brings out the real story. I think the chart below is this kind of chart.

Here we see a profile of one of the big stories of this century. It's the little-noticed, little-understood bull market in gold. Yet, as I see it, gold is in the early part of the second phase of its bull market. This is the phase where the institutions and the more sophisticated public begin to nibble at the item. But as usual, most of the attention is centered on the daily action of gold, the little wiggles, the position of the Commercials, the 50-day moving average, the current sentiment, the talk, the rumors, the endless BS about gold.

Below we see the big picture, the month by month massive advance in the metal, the accumulation on each decline. My advice all along has been to accumulate gold, continue to buy the dips and the corrections. When you buy gold you are "collecting" an item that has been accepted as wealth for 5,000 years. The danger in holding gold -- it may go down in terms of paper, for a while. The plus in holding gold -- it will be wealth in the face of any and all emergencies and disasters.

At this juncture, every central bank in the world is attempting to keep its currency on the "cheap" or competitive side. To do this they must create ever-more quantities of fiat paper. This is basically inflationary. More and more paper is now chasing tangibles.

Here are the latest statistics on the broad money supplies on a year-over-year basis. As you can see the various central banks are busy creating additional oceans of paper.

Australia plus 9.8%.
Britain plus 11.2%.
Canada plus 9.8%.
Denmark plus 16.3%.
Sweden plus 5.6%.
Switzerland plus 6.3%.
United States plus 6.6%.
Euro area plus 8.5%.

click to enlarge chart

click to enlarge chart

Advice -- Greenspan in his parting months must have gotten the fear of God in him. After driving rates down to a generational low of 1% -- lo and behold, inflation began to raise its dreaded head. And why not -- Greenspan has created inflation. And surprise, after a while, Greenspan begins to fear the very inflation that he has created. So the Green man has an idea -- why not boost short rates up by "measured" mini-amounts until inflation cries "ouch." So it's the old Fed see-saw -- down to 1% and then up to 4%, and heading for 4.5% or even 5%.

The "measured" rates are starting, just starting, to put the squeeze on almost everything -- not yet knocking them down, just squeezing their upward progress. Consequently, the place to be right now is in T-bills. Wasn't it my old friend, Marty Zweig, who warned -- "Don't fight the Fed." And I do believe Marty was right. Therefore, get into T-bills and don't fight the Fed.

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

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