Sheryl F. is only a prospective subscriber at this point, but her letter comes first today, since it probably typifies the thinking of millions of newly despairing gold bugs around the world. She write as follows: "I sold 99% of my metals today. A commodities trader I know thinks Greenspan will increase rates, making the dollar strong and pushing metal shares down in the short- to mid-term, meaning six months to two years -- too long for me to hold."

Let me say right off the bat that, bullish as I am on gold's long-term prospects, I wouldn't back up the truck to buy ingots at these levels. Although the HUI "Gold Bugs Index" made a bottom at 191.65 on Wednesday - exactly 0.28 points from where I've been telling you to expect an important low - it is still a speculative bet. Which is to say, it's a great place to bottom-fish with a very tight stop-loss, but not a bottom on which I would bet the farm.

Moreover, if the HUI's decline should exceed Wednesday'slow by a mere point or two, I'd be forced to consider the possibility that the slide will continue to at least 160, where a supportive trendline going back 21 months comes in. My reliance on a conventional trendline instead of hidden pivots is dictated by the fact that there are no more hidden pivots left in this downtrend. Specifically, when the HUI touched 191.93 yesterday, that used up the last of them: 191.93 was the lowest low I am able to project based on the long-term charts.

Adding to the uncertainty about whether gold may have bottomed is the so-far failure of the dollar to reach the 92.46 (basis June) top I'd projected. Wednesday's high at 91.53 left a bit of rally room, falling as it did between two crucial inflection points (the lower of which was 91.17). A further complication is that the June mini-euro bounced robustly yesterday from within 0.0001 points of a potential major bottom at 1.1804 that I'd advertised.

So, are corrective phases in gold, the euro and the dollar about to end simultaneously, as predicted here earlier in the week? Perhaps. But I am troubled by the performance of Newmont Mining, a crucial bellwether for precious-metals stocks that seems not to have bottomed yet. While yesterday's carnage brought it down to 38.82, my downside target is a bit lower: 37.63. There is always the possibility that Newmont could get kicked downstairs one last time today or tomorrow while bullion quotes barely budge and the dollar blips slightly higher -- but again, I wouldn't bet the farm on it. It is nonetheless the best outcome we can hope for, since it would give us a hidden-pivot low in a key gold stock that is corroborated by a simultaneous top in the dollar at an important hidden pivot.

We're well protected no matter what, and even starting to make a few bucks on the short side of some gold positions. But we cannot allow ourselves to become emotionally attached to the bullish case with precious-metals charts still pointing lower, as they are. Telling you that I do not believe gold stocks have entered a bear market is as much emotion as can be allowed.

Which brings me back to the theory that Sheryl F. finds so distressing - that "Greenspan will increase rates, making the dollar strong and pushing metal shares down in the short- to mid-term." We should ask, what possible incentive does the central bank have to push interest rates higher in order to strengthen the dollar? For if either or both of those objectives is achieved it will tighten the noose around virtually all who owe dollars (and I mean mortgage borrowers in particular, although certainly not exclusively). Does the Fed risk toppling a global debt pyramid just to beat down the rising cost of milk, eggs, college tuition and fuel in the U.S.? I should think not.

Mr. Greenspan has flatly stated that deflation is no longer a concern, but let me give you the straight skinny: No matter what he says, it is his ONLY concern. We can also be certain that he would much rather talk about raising interest rates than actually raise them. Count on it. And don't allow yourself to be distracted by recent increases in the prices of consumer goods and services; for they are no more than microscopic blips compared to a deflationary black hole that threatens to implode if even somewhat higher rates are applied to an estimated $150 trillion of very thinly collateralized derivatives. There is simply no alternative logic, and anyone who professes otherwise is either not in command of the facts, or a self-aggrandizing huckster like Larry Kudlow.

Concerning the supposed threat of inflation, we are all so deeply in hock that we should be praying for it, not hoping Mr. Greenspan will "fight" it. And if $50 crude and $3 at the pump should come to pass, do not mistake that for "inflation" either, since, rather than being passed along through the economy as inflation was during the 1970s, it will only stimulate a tsunami of deflationary bankruptcies in industries such as trucking, air transportation and automobiles. And if you do not expect your wages to rise along with the price of gas, milk, eggs, tuition and medical care, then those price increases will not be inflationary for you, but rather deflationary to the extent they will cause you to curtail the consumption of other things. It thus follows that, in a macroeconomic perspective, "inflation" itself has become deflationary.

Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary. All Contents © 2004, Rick Ackerman. All Rights Reserved. www.rickackerman.com