RUSSELL ON GOLD
"Filing seeks to list and trade Equity Gold Shares of the Equity Gold Trust"
I assume this is the long awaited Gold ETF. If so and if passed, this would mean that gold could be bought and sold on the NYSE just like any stock. This would add tremendously to gold's liquidity (remember, most people don't know how to buy or sell gold, and if they buy it they don't know where to store it). As I understand it, behind each gold ETF would be an actual ounce of gold.
Volume dipped very low on the exchanges last week. Part of that may have been due to the fact that the exchanges were slated to be closed for three days. But I believe it had more to do with general confusion about the markets and about inflation vs. deflation. Add to that the super-high valuations and low short interest rates, and a great many people don't know what the hell to do in this market.
I've repeated the old market adage, "When in doubt, stay out." But even here it's no picnic. You stay out by going into T-bills or CDs or a money market fund and you get paid literally nothing. But nothing's better than losing your capital, and that's the frustrating story for the investor who wants to stay safely on the sidelines, at least for the time being.
On Friday Lowry's Selling Pressure Index collapsed to a multi-year low, meaning that there's very little desire to unload stocks at this time. But there's also little urge to buy, and we can see both of these phenomena via the current low volume on all the exchanges.
Another area of confusion -- one that I've been writing about. In the background we have the global forces for deflation, which stem from world over-production and its accompanying pressure on pricing power. Add the deflationary forces of giant Wal-Mart plus the Internet, and it's enough to give Alan Greenspan the "heebie-jeebies."
Against these deflationary forces we have our heroes, the central banks of the world -- led by the Greenspan Fed.
These guys (I believe they all talk to each other) are printing the paper that is calculated to hold deflation at bay. Remember, the classic monetary definition of deflation is too many goods lined up against too little money. The central banks know all about that -- and the theory is that if pour out enough paper, deflation can't happen.
The problem is that somebody's got to USE the paper, and if American consumers are "tapped out," so to speak, they'll be cutting back on their spending and (God help us) possibly beginning to save.
So it's all very complicated and it very much "up in the air." Inflation or deflation? The Fed wins or it loses? Greenspan is a hero or a villain? The American consumer continues to consume or he cools it?
What's a poor investor to do? My suggestion has been to be very, very careful and to keep a heap of your assets in dollars. Gold is the only real money, so it makes sense to have a chunk of something real -- just in case the scenario turns out to be true bummer.
Let's see, what else can I write about that's worth writing about? I know, I'll write about the dollar, which has been given a funeral by just about every expert around. But what does the market say about the buck?
Below we see daily chart of the US dollar. The blue histograms at the bottom of the chart are trending up, and that's a plus for the dollar. Note that both the 50-day and the 200-day moving averages are coming together at around 88-90. If the dollar should move to just above 90, that would be a sign of strength, and I should add "unexpected" strength.
We also see series of rising bottoms and rising tops, and that's a plus. BUT -- if the dollar drops below 88 that would be a decided negative. At any rate, those who are short the dollar haven't won the game yet. They might, but they haven't yet.
And that's about as much as I can say about the dollar, at least as much as I can say that makes any sense.
Richard Russell
Editor-in-chief - DOW THEORY LETTERS
www.dowtheoryletters.com/dtlol.nsf
June 12, 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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