Gold Manipulation

Richard Russell BIG 'snippet'
Dow Theory Letters
Feb 2, 2007

Extracted from the Jan 31, 2007 edition of Richard's Remarks

January 31, 2007 -- How interested are the pros and the money managers, in gold? How about this? Gold funds hold about $17 billion in gold stocks. On top of this, the new gold Exchange Funds hold about $11 billion in actual gold. That's about $28 billion all together.

Big deal! The value of all US funds runs about $10 trillion. That means that the percentage of gold-oriented material held by the funds is about one-quarter of one percent. To put in another way, that's about $2.80 out of every $1,000 invested in gold. The surprising fact is that gold plus all the gold stocks don't even figure as a percentage of the holdings of US funds.

The interesting thing about the precious metal ETFs is that when you buy their shares, you are effectively taking the metal off the market. The largest gold ETF is the Streettracks Gold Trust. This trust now holds $9.5 billion in actual gold. But it's growing at the rate of 17% a year, which means that it's taking an increasing amount of gold off the market.

I just read Doug Casey's piece about gold manipulation; you can read it on the excellent 321Gold site, [Editor's note: (smile) And we love you, too, RR] which is free on the Internet. Frankly, I've always been sceptical regarding claims of manipulation. But the Casey article is quite convincing. Governments and central banks manipulating the price of gold? Would they really do that? Sure they would -- hey, didn't the Fed under Greenspan hide the M-3 numbers. And Bernanke came in saying that he wanted to make the Fed more transparent. Really, then why didn't he bring the M-3 figures back? Oh, I see -- he didn't want to insult Greenspan.

But why would anyone want to manipulate the price of gold?

The answer is obvious enough. Rising gold is a red flag -- if gold rises too rapidly, it attracts attention, it makes headlines, and then people ask questions. Rising gold might even give the whole plot away. You see, the fiat currency thesis is basically a fraud. It depends on a certain amount of systematic inflation (about 2 percent a year) in order to survive.

Next question -- why do central bankers want the fiat money system to survive? Simple, it's their livelihood. It's what they live on. It's their ticket to power. When Volcker was asked what he liked best about being head of the Fed, he said, "What I liked best was being addressed as 'Mr. Chairman.'"

But if the public, the voters, ever fully understood what a fraud the fiat money system is, they'd vote to end it. Fortunately for the central bankers, money seems to be the hardest thing in the world for the average tax-payer to understand. And even though the fiat money system robs the populace of the fruits of their labor and their savings, the people continues accept it -- they just don't know any better. So on and on it goes, and all the while the central bankers continue to put out their brand of BS.

On to the stock market. Let's take the simple approach, which means looking at a point&figure chart. As you can see on the chart, the Dow rose on a huge high pole, then went into a consolidation which took the Dow to the 12350 box. Next, another run to the upside, taking the Dow to the 12600 box in January. And most recently, a new rally that took the Dow to a new record high today.

The market is overvalued, overbought and over-loved, but so far that hasn't stopped this express train. I almost get the feeling that the Dow is doing an imitation of the Shanghai stock explosion (see chart below). The Transports too got into the act today, closing up over 120 points, although not at new highs.

Interestingly, the Dow has now rocketed far above its target high or "count," which is a mere 12250. This rise is one for the books -- I can't remember seeing anything exactly like it before (particularly in situations where the Transports have still not risen to new highs). One thought -- this rise must be driving the shorts to the wall. Massive losses are building on the short side in this market.

Meanwhile, some good news for gold. The latest move is a vertical column of Xs taking gold above two preceding peaks at the 655 level. This gives us a P&F "count" of 775. The next resistance comes in at the 675 box. At 680, gold will be in position to attack the high box at 730.

Relative strength in silver is outpacing relative strength in gold. In other words, what's good for gold is even better for silver.

lots more follows for subscribers...

Jan 31, 2007
Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters
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