Gold: Buy It and Hold It
Bill Haynes
For weeks--since gold surged from $325 to the $350 level--analysts have been saying that gold is "overbought," that a correction is "in order." Even Richard Russell, a solid gold bull, wrote in his Thursday Daily Remarks that "gold remains overbought." Yet, shortly after Russell penned his opinion, in a matter of minutes, gold moved from $353 to $358 as the COMEX trading
session neared its end. Gold finished the day with a bid of $357.80, for a gain of $7.00 on the day. Silver managed a modest gain of 7 cents.
Although writing for some time that gold was overbought, Russell repeatedly warned his subscribers that bull markets can stay overbought for lengthy periods. Russell cautions his readers not to attempt to trade gold's price swings but to take a position and hold on. Below are his comments on gold from his Thursday Daily Remarks.
"Gold remains overbought, but so far gold has not corrected. Whether this will continue, obviously I don't know. I do know that in very strong or bullish trends, an item can "correct" simply by holding in a tight high range while the moving averages continue to rise and the overbought situation is "worked off" through time, even as the price tends to hold.
"This could be what's happening to gold. It's remarkable that gold has been holding above $350 day after day, even though it is overbought. How do I know gold is overbought? The 200-day MA of gold is down at $321, so gold at today's price around $352 is 9.6% above its 200-day MA. That's a wide
spread, and normally an item that is near 10% above its MA will correct to the downside. The correction may come to gold, but so far, gold has been holding.
"In the face of persistent negative comments in the media, that's a pretty strong performance for gold. Even its detractors have to be impressed."
Most analysts attribute Thursday's $7 gain to developments in the world's two "hot spots," Iraq and the Korean peninsula. In Iraq, UN inspectors found eleven empty chemical warheads and a twelfth that needs "further evaluation." Instantly, the significance of the findings became controversial, with some commentators saying they are justification for the US to attack Iraq. (In CMI's opinion, an attack is certain.)
In South Korea, the defense minister said that the country was preparing for a "worst case scenario" if the US attacks North Korea, which has defiantly spat in Uncle Sam's face regarding nuclear weapons. When President Bush named North Korea a member of the Axis of Evil a few
months ago, most Americans considered it political rhetoric and paid little attention, just as few remember that Bush also labeled Iran an Axis member. However, with North Korea defiantly announcing that it was going forward with nuclear weapons' development, the little communist state leapt into the news--and, undoubtedly, has contributed to gold's price gains. Yet, another development, despite not being a hot news item, has added to gold's price gains.
Wednesday, the White House Budget Director told the US Chamber of Commerce that the Federal government's budget deficit would climb to $200 billion to $300 billion this year and next year. Only six months ago, the White House was projecting deficits of $109 billion this year and $48 billion
in 2004. (Oh, by the way, those estimates do not include the costs of military action in the Middle East.)
In response, a "top Democrat" labeled it "the most reckless fiscal policy imaginable for our country." You have to wonder where the Republicans and the Democrats get their numbers when it comes to Federal government spending.
June 30, 2002, President Bush signed into law a bill that raised the Federal government's debt limit $450 billion to $6.4 trillion. On December 24, 2002, while the nation was immersed in celebrating Christmas, the Treasury quietly sent a letter to the House Speaker informing him that the Federal government will reach the $6.4 trillion debt limit in late February. (When the debt increase bill was being debated in Congress last summer, the Democrats--suddenly stricken with guilt about massive Federal government spending--threatened to shut down the government. In the end, though, they
went along with the debt hike. Democrats never really want limits on Federal government spending; they just took the opportunity to make political hay by embarrassing the Bush administration.)
The $450 billion increase was used up while the Federal government was running a $109 billion deficit? Not hardly. In Disneyland on the Potomac, much of the spending is not included in the budget, which means the real deficit is higher than the reported deficit. In keeping track of Federal government spending, you have to watch the "official" debt increase. (To know how much the Federal government actually owes, you have to watch the "off budget" items, but that is too scary to consider as we are about to go to war.)
Bill Buckler of The Privateer describes it this way: "The $450 billion flew out the Treasury's windows in less than six months. Add a war and swing that half year figure out until the end of 2003, and the final figure could easily reach $1.5 trillion of additional US borrowing. By the end of calendar 2003, US Treasury debt could reach as high as $8 trillion."
With Federal government spending out of control, any wonder gold remains overbought? In time, there will be a correction in the price of gold. Yet, there is no way of knowing if that correction will be from present levels or after gold climbs to $375 or even above $400. Meanwhile, CMI likes
Richard Russell's sage advice about gold: Buy it and hold on. It's a bull market.
Bill Haynes
January 20, 2003
Bill has been a precious metals dealer since 1973.
bill@certifiedmint.com
www.certifiedmint.com
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