The Fourth Major Currency

Richard Russell snippet
Dow Theory Letters
January 31, 2006

Extracted from the January 30, 2006 edition of Richard's Remarks

Remember this -- the US is up to its eyeballs in debt. Right now there is about $10 trillion of debt built into the economy with a total of $40 trillion of unfunded liabilities. This country cannot take deflation or recession, and Ben Bernanke knows it. At even a hint of deflation, the Fed will fight that hint with a program of all-out liquidity and lower interest rates.

Inflation is always a monetary process -- it's a case of too much money being created vs. the amount of money that can be absorbed. So where does the extra money go? It goes into the inflation of assets -- rising home prices, rising tuition prices, rising material prices, rising gold and silver prices, rising housing prices, rising prices of almost everything from a pack of gum to the cost of a new factory.

We're now in the phase that I've been warning about for year. I've expressed this phase as INFLATE or DIE -- die, of course, meaning deflation and depression. No, we're heading for more inflation, inflation as far as the eye can see.

But what if the US consumer, who is responsible for 70% of the nation's GDP, just stops consuming? What if US consumers can't pay their bills and they cut back on their spending? If that happens, I see the Fed really opening the floodgates of liquidity and at the same time cutting interest rates. If that occurs, the dollar will become highly suspect, and I think there would be a panic out of dollars into euros or gold or yen.

Now I'm talking to my subscribers strictly as investors and survivors. It's time to move some portion of your assets into the fourth major currency -- gold. Slowly, begrudgingly, more and more people (including professionals and funds) are realizing this. Gold is finally being considered as an asset class. But more importantly, gold is now being considered a fourth major currency beside the dollar, the euro and the yen. The only difference between gold and fiat money is that nobody has yet learned how to print gold. So instead of "multiplying" by printing, gold increases through a rising price. In other words, the world's reserves of actual physical gold may not rise very rapidly (they don't), but the price of gold can rise in an hour or in a day.

Two generations have gone by since the late-70s, and during that time people have pretty much forgotten about gold. That long, twenty-year bear market in gold has meant that the public, the funds and the pros no longer have any gold. This makes the foundation for a monster bull market. I believe we're in the early second phase of that bull market now. The second phase is where the public (and the funds) slowly, gradually enter the market. The second phase is the longest phase of a bull market.

There were 44 new highs in mining stocks last Friday. Of these, the following were new highs in gold or silver stocks -- PAAS, CDE. SSRI, FCX, HMY, AU, GFI, MDG, CBJ, GG, AEM, MDG, KGC, GOLD, PDG. Today NEM closed at a new high.

...Gold now well above the 550 halfway or 50% level of the entire 1980 to 2000 bear market. This puts gold in line to test the 1980 record high of 850. There's no time limit on the test of the high.

Gold staying overbought, characteristic of great bull markets. Those who want in are waiting for the correction that a seeming army of analysts are promising is "just around the corner." Meanwhile, the gold bull snorts, tosses his head -- and moves higher. The twin bull of silver does the same.

lots more follows for subscribers...

January 30, 2006
Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters
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