Richard Russell On the US Dollar & Gold
I'm showing below a weekly chart of the Dollar Index. Question -- what are we looking at? Is this just another rally in a major downtrend? Maybe. But the Dollar Index is now pushing up and above against a second declining trendline. And the histograms at the bottom of the chart have turned up again. And I ask myself, "It this just another peak with the Dollar Index being halted by its long declining trendline? Or is this the beginning of an important reversal to the upside on the part of the dollar. As I write, it's too early to tell where we are with the dollar. But the chart gives me food for thought.
OK, what does all that I've written amount to? And what should we do about it -- if anything? First, all this is happening within the context of a primary bear market, a primary bear market that has been "contained," "held back," "thwarted," whatever you want to call it. For this reason I take what's happening very seriously. I don't like to fool around with angry, caged bears.
If interest rates break out on the upside, if the dollar continues to climb -- it's going to hit everything. It's going to cause an unwinding of the carry-trade. And it could trigger a move, even a rush -- to liquidity. It's going to set off a move to get out of all "things" and into cash. And cash is what the mass of Americans don't have. The real cash, the real liquidity, is owned and held by a very small percentage of Americans. What the great mass of Americans have is things: houses, cars, junk -- and lots of debt.
Now here's the hard part for me and my subscribers. If what I see above comes into being, there's a good chance that we could see pressure on gold shares. Gold shares are really a "call" on a higher price for gold. Sure, gold is real money, sure gold will triumph in the end, but for now the investment world sees gold as a commodity, like aluminum or wheat. They don't see gold as the only real money. So we could see pressure on gold, but more probably on the gold shares. I don't know for certain that we'll see pressure on gold, but it could happen. We've certainly seen pressure recently -- although this could simply be corrective action.
Personally, I'm going to hold my gold. Holding the metal doesn't worry me. I still have gold that I've carried from the '70s. Gold is the only real money. I don't care, inflation, deflation, boom or bust -- gold is money, and I can't say that about any paper currency. I'm holding all my gold.
The gold stocks could be another story. The gold stocks depend on rising gold for rising profits. In a deflation, or even in an atmosphere where gold simply "doesn't go up," the gold stocks could do poorly. For that reason and all the reasons that I described above, I feel that subscribers must make a personal decision about their gold shares.
In the long run, I believe both gold and gold shares will win. But a lot can happen between now and "the long run." Personally, I've decided that I'm going to sit with my gold-share position. But if I do anything additional in the gold area, it will be to buy more coins. What I care about is my total position -- but I'll let you in on a secret, the market couldn't care less whether you or I have profits or losses. The market is a law unto itself.
Editor-in-chief - DOW THEORY LETTERS
April 27, 2004
The inimitable and venerable Mr. Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron's during the late-'50s through the '90s. Through Barron's and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-'66 bull market. And almost to the day he called the bottom of the great 1972-'74 bear market, and the beginning of the great bull market which started in December 1974.
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