 Gold:
The 50% Principle
Richard Russell
Dow Theory Letters
May 14, 2004
Extracted
from the May 13, 2004 edition of Richard's Remarks
Gold ...Meanwhile gold,
having risen from its 1999 low of 253, to its April 2004 high
of 432, backs off to the 372-375 level, and consolidates as it
decides which way to go.
Applying the
50% Principle to gold, the rise from 253 to 432 means that gold
rose 179 points. Half of that is 90 points. Subtracting 90 from
the high of 432 gives us 342.
According to the 50% Principle, as long as gold holds above 342
it remains long-term bullish. This means that gold, in due time,
will rise to test the 432 high. If gold breaks out above 432
it will probably head higher to test the 1980 high of 860.
Gold and gold
shares becoming increasingly oversold. Gold has been outperforming
the shares since Dec. 1, but histogams for HUI are close to turning
up.
Question
from a subscriber
-- You mentioned that you bought more American eagles. My question
is you pay a premium to buy them and you sell at a discount.
Is it viable for anyone to have a plan to buy and sell them with
the rise and fall of the price of gold or is it simply your intention
to hold permanently?
Russell
answer
-- My thinking is that any gold I buy I'll hold permanently regardless
of price. There might be one exception that would cause me to
sell gold. If we have wild inflation and gold goes to some high
price and interest rates rise to say 15% on Treasuries... If
that happens, I might be tempted to swap gold for Treasuries
as per the situation back in 1980. Otherwise, my gold is a permanent
possession.
Of course,
there's a problem with the above scenario -- if we have wild
inflation, it becomes extremely hard on the nerves to swap real
money (gold) for depreciating paper dollars that conceivably
could become worthless in time.
Richard Russell
Dow Theory
Letters
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