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Sitting with the metal

Richard Russell
Dow Theory Letters
Dec 22, 2003

Extracted from the Dec 19, 2003 issue of Richard's Remarks

Gold --Back in 1947 when I graduated from college it was hard, ridiculously hard, to find a job. Millions of WWII vets had come back into the economy, and we were all looking for work.

I was a pretty good artist, and I was lucky enough to find a job working for a textile company, designing and selling textiles. This was a company run by two brothers and their brother-in-law. During the Depression these guys would travel through the Eastern United States selling packages of cotton cloth, each package containing about 5 yards of nicely designed cotton cloth. In those days times were so tough that millions of women owned sewing machines, and they made their own clothes. The three fellows that I worked for made millions of dollars during the Depression. They would buy tens of thousands of yards of cotton goods from the mills, design and print them and turn them into five-yard packages and sell these packs to retail stores.

I learned a lot about business from these three guys. They had been through the Depression, and had come out rich. One day I asked Mr. Weiss (he was the head guy) about his company's stock during the 1930's.

He told me, "Dick, we had a huge advantage. We never went public, and therefore we never had to watch our stock collapse the way almost every publicly listed stock did. Believe me, that was a huge advantage. We knew we were doing pretty well, and since we owned all our stock, we never had the stomach-turning disadvantage of seeing our stock go down the drain on the stock exchange."

I was thinking of the above in relation to gold and the gold shares today. Very frankly, I wish I didn't have to write about gold every day and quote the price of gold and the gold shares every day. Gold is in a very long-term bull market, and I'm going to be sitting with the metal and the stocks for a long time to come. I get e-mails from subscribers every day telling me that they're ahead 50% or 60% or 200% in the gold and silver stock holdings.

And my silent response is, "So what? You're not going to sell your stocks anyway, so what's the difference whether they're up 20% or down 20%. The coins and the shares represent a 'position,' a percentage of your net assets. You might as well ask your real estate broker to give you his estimate of what your home is worth every day."

Sure gold and the gold shares may now be ahead of themselves. They may correct or they may sit while their 200-day moving averages rise to meet their current price. We don't know (we never do), and gold is probably the world's most "emotional" investment. It's an emotional item, since rising gold is the market's way of saying, "Your dollars are worth less and less in terms of real intrinsic money."

Also, rising gold and gold shares are an affront and a danger-flag waving in the face of the world's central banks and their paper money. So is it any wonder that gold is probably the most emotion-packed item in the world today.

Therefore, gold is under periodic attack from the central banks. The banks' job, remember, is to keep the world's population believing that paper money is real money while gold is a "relic of the past."

Big Picture --As I see it, this is a particularly fascinating juncture in US and world economic history.

On the big picture, the US is rapidly losing its manufacturing base to Asia.

On the big picture, the dollar is on its way to losing its status as the world's reserve currency.

On the big picture, the dollar for the first time in recent history has a legitimate rival -- the euro.

On the big picture, this big bear market rally has been generated by artificially lowered short-interest rates and by the greatest Fed-generated spate of liquidity in US history.

Tomorrow or probably next week I'm going to write a piece about the very BIG PICTURE that I see ahead. It entails the US losing its manufacturing base and the dollar losing its reign as the world's reserve currency. These two items will represent some of the greatest changes in US history. The implications will affect the lives of everyone in this nation. The implications will be almost unimaginable for the average American. Many of these changes will hit during the coming five years.

More follows for subscribers . . .

Richard Russell
Dow Theory Letters

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