View Full Version : Richard Russell: Six reasons to invest in gold

Jim Nickerson
11-15-09, 07:39 PM
Russell and David Fuller 11/12/09


<ins style="border: medium none ; margin: 0pt; padding: 0pt; display: inline-table; height: 90px; position: relative; visibility: visible; width: 728px;"></ins> Fri 13 Nov 2009
Richard Russell: Six reasons to invest in gold (http://www.investmentpostcards.com/2009/11/13/richard-russell-six-reasons-to-invest-in-gold/)
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The paragraphs below are excerpts from Richard Russell’s latest Dow Theory Letters (http://www.dowtheoryletters.com/), arguing the case for gold bullion.

“Today I ask myself, where would I rather have my subscribers be - loaded up in the Dow Jones Industrial Average or loaded up with gold?. And in all honesty, I believe they are better off in gold than in the stock market with DIA.

“There are a number of items favoring higher gold now.

(1) Interest rates are at zero, which means the ‘opportunity cost’ of owning gold now is highly favorable. You sacrifice no yield in owning gold vs. Treasury bills. T-bills pay you nothing, so you might as well have your money in gold.

(2) The Bernanke Fed will evidently stop at nothing in its all-out attempt to ‘jump start’ the wobbly US economy. This means spending and building debt at a never-seen-before rate. This will result in inflation. The Fed can create fiat money - any quantity at will, but it cannot direct where that money will go. So far, the money is not going into the economy, banks remain reluctant to lend and consumers are reluctant to spend. The newly-created money has been going into bank reserves and into the stock market. Stocks have been rising on an ocean of liquidity. The sinking dollar has been a huge help to the big Dow-type stocks which benefit from their ability to export. This is resulting in world-wide central bank inflation as the banks seek to devalue their money in an effort to keep the dollar strong.

(3) The world’s central banks are now seeking to protect themselves from a falling dollar by buying gold. After years of selling gold, ironically, the central banks are now buying gold. In today’s Wall Street Journal we see the headline, ‘Central Banks Join A New Gold Rush’. This is indeed ironic. In swapping their own paper for gold, many central banks are admitting that gold is superior to the very paper they are creating out of thin air.

(4) Many nations are now seeking to boost the ratio of gold to paper in their reserves. The US has the largest ratio of gold to junk fiat paper, 77.4%. But the US stupidly only places the value of our gold at $42.22 an ounce. If the US marked our gold to market, it would be a tremendous help to our government’s balance sheet. But the US prefers to live in a fantasy world where gold is worth less than $50 an ounce!
Germany has 69.2% of its reserves in gold.

Italy has 66.6%.
France has 70.6%.
UK has 17.6% (after idiotically selling most of its gold near the low below $300 an ounce).
Japan has 2.3% of its reserves in gold.
India has 4.0%.
Russia has 4.3%.
China has 1.9%.

It’s easy to see that Russia, India and China are low on gold. All three would like to at least double the percentage of gold in their reserves. The race is on for these central banks to accumulate gold without running the price of gold sky-high.

(5) In the US, literally no one owns gold. Rather, US citizens are selling their gold (jewelry) to companies who are advertising that they’ll buy ‘your overpriced’ gold for cash.

(6) A few nations are actively promoting the ownership of gold. China, the world’s biggest miner of gold, has been encouraging its people to buy gold. In London, Harrod’s department store is now selling gold coins and bars to anyone who has the paper to buy gold. Within a year or so, I expect public buying of gold to reach a crescendo. Interestingly, most Americans have never seen a gold coin.”

Although gold certainly looks bullish on a medium- to longer-term horizon, one must be cognizant of the precious metal perhaps having risen too much too soon for the moment. David Fuller (Fullermoney) (http://www.fullermoney.com/) said: “On a very short-term technical basis, gold is temporarily overbought following its steady march higher ever since the market was surprised by India’s purchase. Today’s small key day reversal suggests that a pause and consolidation may now occur, possibly similar to the small reactions and trading ranges seen in September and October. However, we may also see a briefer and shallower consolidation, as is often the case when a trend becomes more widely recognised and therefore attracts participation.”
Sources: Richard Russell, Dow Theory Letters (http://www.dowtheoryletters.com/) and David Fuller, Fullermoney (http://www.fullermoney.com/), November 12, 2009.