...and dreaming of Softgoo
Dow Theory Letters
Dec 28, 2005
from the December 27, 2005 edition of Richard's Remarks
...GOLD WILL RISE; THE GOLD
BULL MARKET WILL CONTINUE. It's only a question of HOW the gold
bull market develops -- where and when the periodic corrections
appear, and how high the gold bull market will rise.
Once investors and the general
public recognize and understand the predicament that the Federal
Reserve and its ever-expanding oceans of fiat money it has
placed this nation in -- the bull market in gold will accelerate.
The timing of the gold bull market, like the timing of every
other bull market in US history, will be impossible to predict.
In this business the best we can do (if we're lucky) is IDENTIFY.
Precise crystal-ball forecasting is beyond the scope of any analysts
(regardless of what they may claim).
Federal Reserve Chairman Greenspan
has been in office for 18 years. During those 18 years the nation
never suffered a serious, extended recession. Greenspan has fought
every attempt by the US economy to correct. When an economy corrects,
debt is reduced, paid off or eliminated through bankruptcy. But
instead of reducing or eliminating debt, the US has built up
its edifice of debt.
Debt doesn't "go away."
A business can "go away," customers can "go away,"
prosperity can "go away" -- but debt remains. Debt
must be financed, reneged on -- or inflated away. The easiest
way to handle debt is to reduce its size (power) through inflation.
This is the course that the Fed, the Congress, the President
and the nation have chosen. This has been accomplished by increasing
the money supply. Only one thing stands in the way of increasing
the money supply (assuming it is fiat money).
That one thing is -- GOLD.
This is why central banks fear and hate gold. As they continue
on the path of increasing the money supply, gold rises. And rising
gold is a red flag, a time-honored alarm system that announces
to the world that something is wrong.
When gold rises, the world's
population asks questions. And when the populace asks questions,
the central banks are forced to come up with new threats and
lies. For instance, one threat has recently come from the central
bank of Germany. The lying threat is that the German central
bank is considering selling ALL of its gold. Of course, they
would never dare, but that's the rumor the bank is spreading.
My comment is that I wish all the central banks would once and
for all sell all their gold. Then gold would be in the hands
of honest people, and the central banks' lying threats would
be gone, impotent, finished forever.
Ironically, however, there's
another rumor going around. This rumor is that the central banks
of Asia want to INCREASE their gold reserves. So maybe sometime
in the future we will see a deal whereby China will offer to
buy Germany's entire stock of gold. Yeah, and wouldn't that be
telling us something about the new "Decline of the West."
At this juncture, gold appears to be strong against almost everything.
Charts may not predict, but they certainly tell us what's happening.
Below we see a ratio of gold against the S&P 500 Composite.
And it's obvious that gold is outperforming stocks.
The chart below shows gold
vs. oil, and here too we see oil outperforming the world's leading
source of energy.
I've been saying that gold
is overbought, and the truth is that gold is staying overbought.
The weekly chart below shows the high degree in which gold is
overbought, and for this reason I have now stopped adding to
my gold holdings. I'm not selling, but I've stopped adding.
RSI is in overbought territory,
MACD looks very toppy, and the full stochastics, second from
the bottom of the chart, are turning down. The 12-week rate-of-change
at the very bottom of the chart has also turned down. All of
these studies show gold to be overbought, but we should remember
that the persistence of an overbought condition is a sign of
strength in a bull market.
The advance in gold has come
in the face of dollar strength, which has been one of the biggest
foolers for those who were convinced that gold's rise was simply
the reverse action of the dollar. The chart suggests a round
of dollar weakness coming up or at best pressure on the dollar.
Of course the dollar strength
is synthetic since so many central banks are creating paper money
with which to buy dollars, thus keeping their own currencies
"weak" and their own goods competitive for export.
After today's market action,
we have three more days until we say good bye to the year 2005.
The few days following Christmas to New Year are famous for rallies
(selling usually ceases), but so far we haven't seen any strong
rallies. I could be wrong, but this doesn't bode well for early
action in 2006.
...CONCLUSION -- I've
been saying, T-bills and gold, and I continue to say "T-bills
I had a nightmare last night,
and in that nightmare everything that was out-of-kilter and screwed
up -- came together in the fateful year 2006. The dollar plunged,
interest rates surged, gold headed north, the stock market headed
south, Iraq unraveled as civil war broke out, VP Cheney came
out in favor of gay marriage, and Rumsfeld decided to retire
and become a monk. Google dropped 200 points in a single week
and was immediately taken over by Microsoft. A triumphant
Bill Gates tells the world the name of the new corporation --
Worst of all, Hillary and Condi
got into a bloody fist fight, which basically ended either of
their chances of running for president. Bush threw in the sponge,
followed Cheney, and came out in favor of gay marriage while
at the same time denouncing the death penalty. Arnold announced
that he had enough of California, and that he would run for the
presidency in 2008. The WSJ denounced everything. The
Financial Times decided to drop the pink from their paper
and opted for a gold tint instead. The New York Times
filed for bankruptcy. Economists at Goldman Sacks opined that,
all in all, it seemed like an unfavorable start for the New Year.
lots more follows for subscribers...
note: We have permission to extract, now and again, snippets
from Richard's Remarks. The above is probably stepping over the
'snippet' boundary. But the Remarks were stuffed with gold comments,
and it is Holiday Treat Time.
Thanks, Richard, for letting us post in 2005 - and this comes
with Best Wishes to you and yours, for a Healthy, Fun and Prosperous
December 27, 2005
email: Dow Theory Letters
© Copyright 1958-2014 Dow Theory Letters, Inc.
began publishing Dow Theory Letters in 1958, and he has
been writing the Letters ever since (never once having skipped
a Letter). Dow Theory Letters is the oldest service continuously
written by one person in the business.
offers a TRIAL (two consecutive up-to-date issues) for $1.00 (same price that was
originally charged in 1958). Trials, please one time only. Mail
your $1.00 check to: Dow Theory Letters, PO Box 1759, La Jolla,
CA 92038 (annual cost of a subscription is $300, tax deductible
if ordered through your business).