A hard look
at gold
Richard Russell snippet
Dow Theory Letters
Oct 28, 2008
The newspaper and magazines
are currently featuring articles and editorials about the wickedness
of Wall Street. Everybody is searching for a scapegoat to pin
the blame on for the sad state of the US and the world. But one
thought stays in the back of my mind. Great bear markets tend
to clear the air, great bear markets tend to reveal the lies
and bring out the truths.
The one area that no one touches,
that no politician will mention, that no investigative journalist
will dare discuss is the value and viability of fiat money.
Yet, we know that throughout history, no fiat currency has ever
survived. My thinking is that fiat money was expressly forbidden
in the US Constitution. The Founding Fathers in their wisdom
expressly stated that the US was not to resort to fiat money.
Today, the US government can "print" Federal Reserve
Notes and decree by law or fiat that what they are printing or
creating by computer is legal for the payment of all debt. In
other words, fiat money is indeed money by government proclamation.
It's as if the US government proclaimed by fiat that "all
cats are now dogs." It makes that much sense. Since money
is wealth or payment for work done, the question is -- is fiat
money really wealth? To ask that question today is almost treasonous.
You and I work for a real return.
Is it logical that what ten thousand men work for can be printed
in an instant by the government? Fiat money exists for only one
reason -- the last three generations are used to it, nobody questions
it -- it is based on mindless confidence in the government.
Every central bank on the planet
is now grinding out their brand of fiat currency -- and in large
quantities. I believe that somewhere ahead doubt will rise as
to the validity and logic of fiat money. Fiat money has existed
and been accepted for recent decades. My belief is that ultimately
this bear market is going to expose the great fraud of fiat money.
Right now, for some reason, gold and gold bars are being swept
off the market. Call up any coin dealer and ask about his inventory
of gold coins. He'll tell you he has none. Why? What's happening?
I think this is the first stirring of distrust in fiat money.
The little cloud, now no bigger than a fist, is growing. The
little dark cloud is distrust in fiat money. And it's growing.
Gold -- Let's take a hard look at gold. It's severely
oversold. From Oct 9 to Oct. 23 gold declined on a closing basis
8 out of 10 sessions or 80% of the time. That alone spelled oversold.
Note the long "stems" on the first red arrow. These
stems denote rejection of the downside. The blue histograms are
beginning to pull back towards zero. Finally, the full stochastics
are in oversold territory and are now starting to turn up. Conclusion
-- gold may now be attempting to establish a bottom.
Oct 27, 2008
Richard Russell
website: Dow
Theory Letters
email: Dow Theory Letters
Russell Archives
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