The questions are endless

Richard Russell snippet
Dow Theory Letters
posted Oct 9, 2009

...Meanwhile, unintended consequences are emerging from the massive sums that the Bernanke Fed has created. The stock market is rising in a liquidity bubble. Worse, gold is climbing into all-time high territory, and in so doing, it is advertising to the world that the dollar is sinking and that "something is dreadfully wrong." And the worst of it is that housing prices are not rising, they remain weak. And now commercial real estate is sinking.

Currently, the talk is of "exit strategies." Strategies to undo the damage that the Fed has done. But the Fed isn't finished yet. And the story hasn't been told in full. What happens if a fed-up world decides to exit the dollar? Oil is priced and sold in dollars. What if the oil producers decide that they want a different currency. What happens then? The questions are endless.

The problem -- you can't save the real world with fantasy money. When too much fantasy money is created, knowledgeable people turn to real money -- gold. Which is why central bankers fear and hate gold.

When the world turns to gold, it is turning away from the fantasy ("counterfeit") currency that the central banks create. This terrifies the bankers, whose power comes from their ability to create "money" out of thin air.

Meanwhile, a great bull market starts, it's a bull market that mirrors the demise of the dollar. Gold is priced in dollars, and as the dollar weakens, it takes an increasing amount of fiat dollars to buy an ounce of gold. The chart below, courtesy of the Chart Store, shows the dollar price of gold going back to 1973. Ah, 1973, that was the year when Richard Russell started writing profusely about the only Constitutional money. Ask your Congressman or Senator what the US Constitution says about gold and money. And then ask them what happened. And ask them what the Constitution says about the Federal Reserve. Hint -- the US Constitution doesn't say a damn thing, not a word, about a Federal Reserve.

Beginning in 1999 gold started up in a primary bull market. In my personal opinion, this is fated to be one of the greatest bull markets in history. It will be a bull market built on not one, but two powerful human emotions -- both greed and fear. The speculative third phase lies ahead. Slowly but surely, the US public will finally realize that the US government is bankrupt both morally and monetarily. People will panic into gold to save whatever they have left from the inflationary intentions of the US government.

Russell Opinion -- Aside from the Chinese and Indians, the world's population owns no gold. Ask any American whether he owns gold. Ask any fund manager whether he has gold in his fund. As the planet realizes to its horror that all fiat currency is "worthless" fantasy currency, I believe that there will be a world panic to buy gold. This will set off one of the wildest and most explosive bull markets in history.

Meanwhile, the "secondary" monetary metal is silver (often called "the poor man's gold"). Silver is far too cheap compared with its historic ratio to gold, which has been as low as 15 to 1. An ounce of gold now buys 59 ounces of silver. The chart below shows the silver bull market on its climb from just over 8 dollars an ounce in late-2008 to 17.76 an ounce this morning.

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Should you buy gold or add to your gold here? I did -- I bought GDX which is a play on the gold shares, its biggest holdings are NEM, ABX and GG (they comprise 30% of the trust) with 27 other gold and silver mines making up the rest. If gold continues higher, the mines should leverage higher since their product, gold, increases in price while the mines' costs (theoretically) stay generally fixed.

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Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters
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