20 February 2009

Let's talk a bit about gold~ Richard Russell

Dow Theory Letters
Feb 19, 2009

February 18, 2009 -- I'm going to stick with orthodox Dow Theory, no excuses, no variations -- no "ifs" and "buts." IF the Industrial Average CLOSES below 7552.29 today [Wed] the scales will be removed from this site and I'll make this call -- the primary trend of the market has been re-confirmed as bearish under Dow Theory. In that case, my advice will be as follows -- my subscribers should be in (1) gold coins or GLD, GTU, CEF or (2) cash or T-bills, (3) small positions in GDX or gold shares are OK. [Editor's note: FYI the Dow closed on Wed. at 7555.63, up 3.3]

I will add that if the bear market is re-confirmed, I will take it as a tragic omen. In which case I see extremely hard times ahead for the US and its population. And a warning -- I see another danger ahead -- civil disobedience. During the Great Depression, Americans were largely law-abiding. I don't see those conditions today. There are over a million gang members in the US today and violence is prevalent everywhere. It will not be easy living through the rest of through the rest of this bear market.

There's only one major bull market now in force, and that bull market is in gold. We're talking about possibly making money or at the very least surviving, so let's talk a bit about gold.

The dollar isn't fundamentally strong, but these days (with no connection with gold) there is no definition for the dollar -- the dollar must be measured against other world currencies. The world's economies are sick -- they are even sicker than the US economy (remember, the US alone has the advantage of owning the world's reserve currency). Since a nation's currency is a good gauge of a nation's economic health, we note that almost all other currencies are weaker than the fundamentally weak US dollar. Today, it's well to note that gold has been rising to record highs against all major currencies except the dollar.

At this point, many countries are growing suspicious of the US's massive creation of dollars, and they are looking for a safer asset than the dollar to hold in their reserves. That safe asset, history tells them, is GOLD. For this reason, it is instructive to review the gold holdings of the major nations and the percentage that gold makes up of each nation's reserves.

Here are some figures, the first number is the nation's holding of gold and the second figure is the percentage that gold is of their reserves. Nations with low percentages of gold in their reserves may be expected to be potential buyers of gold.

US -- owns 8,135 tonnes of gold... Gold makes up 64.4% of US reserves. The US will not sell any of its gold.
[Editor's comment: Who says the US will not sell any of its gold?]
Germany -- 3,412... ...64.4% of reserves
IMF -- 3,217... ... ...(1)
France -- 2,508... ... ...58.7%
Italy -- 2,451... ... ...61.9%
Switzerland -- 1,040... ...23.8%
Japan -- 765.2... ...1.9% ...(a potential gold-buyer)
China -- 600.0... ...0.9% ...(should be a big buyer)
Russia -- 495. 9... ...2.2% ...(is a buyer)
Taiwan -- 422.2... ...3.6% ...(should be a buyer)
India -- 357.7... ...3.0% ...(should be a buyer)
UK -- 310.3... ... ...14.5% ...(sold most of its gold at the low price)
Saudi Arabia -- 143.0... ...11.4% (should buy gold)
South Africa -- 124.4... ...9.0%
Australia -- 79.8... ... ...6.3%


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