The Message and The Meaning

Richard Russell snippet
Dow Theory Letters
Jul 16, 2008

Extracted from the Jul 15, 2008 edition of Richard's Remarks

July 15, 2008 Oil and copper and the CRB Commodity Index got whacked today but against that gold was actually higher. What's the meaning of this? Oil and copper going down is deflationary, but gold is not just a commodity, gold is wealth. If or when the world ever sinks into depression, gold will be wealth when everything else is suspect.

...I said it three years ago, I said it two years ago, I said it a year ago, I said it six months ago, and I'll say it again today. The Achilles Heel of the United States is the dollar. The reserve status of the US dollar is absolutely critical to the health of the US. If the dollar begins to lose its reserve status, the US economy will be in shambles.

Gold is now on the move. It's taking more and more dollars to buy an ounce of real money -- gold. This is the market's way of saying that it trusts the value of the dollar less and less. You may like gold as I do, but the rising trend of gold is a red flag for the health of the United States. The rising dollar price of gold is telling us that both the US economy and the dollar are in trouble.

The US is the only nation in the world that can print the currency that its own debt is denominated in. That's an unbelievable "gift." But the US has been doing too damn much printing and too much debt creating. The world recognizes this, and it's systematically moving away from dollars. Nations are now creating Sovereign Wealth Funds that buy tangibles while at the same time they're getting rid of unwanted dollars.

Right now almost everything from stocks to the Dow to homes to food is losing value relative to gold. I tell you it's ominous. And it's all the more ominous because 95% of analysts and economists don't recognize or understand what's going on. They're ignorant of the message that rising gold is sending us, and worse -- they're ignorant of the very meaning of gold.

...Some of the best writings on gold today comes from my old New York friend, Ron Rosen, who writes the Rosen Market Timing Letter. Ron is a close student (to put it mildly) of the markets, gold, gold history and gold action. Below are a few paragraphs from Ron's current report:-

"This world has been functioning for decades on faith and trust in paper money and the politicians backing it. One day, hopefully, citizens of the world will know better than to trust their politicians with anything that vaguely resembles money. The pain associated with this learning lesson is in the process of being hammered home. There may be some violent corrections on the way up to the ultimate destination for gold, silver, and their shares. However, the percentage of the price corrections should remain relatively normal. As the climb in price becomes more extensive and violent, the corrections may become shorter in time consumed. A "blowoff" is what the precious metals complex is in the process of beginning.

"The gold market chart of 1978 closely resembles the gold market chart of 2008. The patterns, once a breakout above a previous multi-year high occurred, are nearly identical. If you compare the first seven months after the breakout to a new all time high occurred in 1978 to the first seven months after the breakout to a new all time high occurred in 2008 you will see nearly identical patterns. In 1978 gold rose from the breakout price of $192 to the ultimate high of $873. That was an increase of 450%. If the current gold breakout from the $850 high increases by 450% the ultimate high will be $3,825.00. However, we are living in more dangerous financial times than existed in the 1978 to 1980 period.

"The daily chart below shows that gold is clearly overbought. The series of gaps as gold rises are called "runaway" gaps. Gold is moving into the beginning of what I call a potential buying stampede. Those who have traded out of gold (and there are a lot of them) are now being left behind. In a buying stampede, overbought conditions are traditionally ignored. The idea at this point is to get into the item (gold), and those who wait are left behind. We last experienced a buying stampede in gold during 1979-1980. It may be a bit early, but I suspect that if gold closes above 1000 we will be close to another buying stampede.

lots more follows for subscribers, and subscribing is a MUST.

written Jul 15, 2008
Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters
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