RICHARD RUSSELL: THE SKYROCKETING PHASE IN GOLD LIES AHEAD….
Via Richard Russell’s Dow Theory Letters:
“Day after day, everyone asks whether gold has topped out. Nobody ever asks whether the market has topped out. Think about it, we’re in a low inflation, low investor fear environment, a dollar that appears to have bottomed and is now firming, and still gold holds above 1700 an ounce. This is a remarkable performance aided by heavy buying in China, India, and Asian nations. But what happens when we hit the inevitable inflation; when investors fears are on the rise? To conclude, gold is holding well in an environment that is not bullish for gold, but in due time, the environment will turn highly bullish for the yellow metal. Do not time your gold purchases. Simply continue to accumulate gold. The skyrocketing phase lies ahead, maybe one to three years.. “
Mr. Russell is in the hospital recovering from a broken hip, but going strong at 87. I wish him a speedy recovery….
“Get your Cabbage Patch Dolls” quick before the price goes up!”
Substitute “Cabbage Patch Dolls” for “gold” in just about any statement and you will see how ridiculous gold buggery is.
Just how is buying gold “investing”? What human good is accomplished by digging gold out of the ground and reburying it in bank vaults? Less than none?
Gold is money. If you don’t understand that then you will make statements like “What human good is accomplished by digging gold out of the ground and reburying it in bank vaults?”
The proper thing to ask is why hold fiat when real interest rates are negative? An even better question to ask is why do the majority of central banks in the world still hold gold 40 years after the gold window closed? Seems to me that’s like clutching the Bible in one hand while pounding the table about the freedom of Atheism with the other.
The proper thing to ask is why hold fiat when real interest rates are negative? jr
Then buy something useful such as land and hope for a recovery. With gold buying your hope is that we return to a stupid and fascist money system.
Exactly! Holding/buying gold for any reason other than the keynes beauty contest (meaning as an investment) is ridiculous unless you truly believe we’re going back on the gold standard.
If you hold as a ‘hedge’ against the collapse of fiat currency you should be holding guns, ammo & water (anyone know a good ETF for that
).
Happy Thanksgiving everyone.
Buy gold…borrow prudently against it, and purchase your land – and pay back your debt. You will have attained the greatest wealth in this way.
The arguments against gold are grudges, super silly, unambitious and vacuous – as there is no bubble in the price of gold, although there is only a bubble in the interest and discussion of gold..That’s It! The precious metal is under-owned in portfolios, and people are biased against gold because they are stock-biased.
Be diversified
and people are biased against gold because they are stock-biased. HumbleGrizz
Common stock is actually an ideal private money form and would be widely used as such except for the government enforced/backed money monopoly for private debts. Common stock money money requires no usury, no PMs, and no fractional reserves. It cheats no one, unlike our present system that cheats everyone, including the banks themselves ultimately.
Land has a carrying cost called Property Taxes, and those taxes are likely to soar as State and Local governments get more squeezed.
Perhaps the environment in the USA isn’t particularly bullish for gold, but Mr. Russell forgets that markets are global. The fear environment in Europe is very bullish for Gold, flight capital is bullish for Gold, and the high inflation and potential political instability in China is bullish for Gold. India also has high inflation, and that is bullish for Gold, particularly in a country where gold ownership as a store of wealth is in the national culture. And the Arabs are also very fond of gold, and have lots of cash to store from their oil exports.
Gold is money? Away with you lad!
Can’t pay my taxes with it and I can’t use it down the supermarket.
Stuff the cabbage patch dolls, I’d rather the full hello kitty collection.
The Ecstasy of Gold – Gold will buy anything, as the supermarket manager will attest to, and also the taxman-in any country on the planet Earth.
Your statement is a false one….
Incorrect, the United States IRS does not accept gold, (for a reason) they only accept US dollars. And while the supermarket manager might accept gold, as the individual he is, the supermarket as an entity takes only US dollars because they have to pay their taxes in US dollars.
Gold’s value is not ‘intrinsic’ to it as a substance, but to our perception of it (which can and does include its value to us for its uses). Therefore its value is not in it, but in us. Its just a shiny rock, its no more a currency than copper is. It is a commodity.
+1. They confuse the medium with the message.
I’m thinking that some of the other precious metals like Platinum might be better to hold as an inflation hedge, due to their industrial usefulness ensuring ongoing and fairly consistent demand. The price of gold seems to be almost entirely determined by sentiment, and is thus altogether far too volatile, like gambling. I’m old enough to remember the huge bubble in gold in 1980, which has yet to be matched in real terms, and 31 years is an awful long time to be behind on a bet.
Sir,
you are wrong – they do. I can pay my taxes wigh golden and silver eagles. It would be insanity, but it is possible.
KB,
Fair enough. But both are the officially minted bullion coin of the US for that metal, correct? This means the US Government controls the supply of them and since the amount of your tax liability that would be extinguished would be dollar denominated means you would be open to ‘exchange rate’ risk·
What I’m getting at is that the underlying unit that actually extinguish tax liability us US dollars even if you use eagles. The supply is still controlled by Uncle Sam and the root denomination is the US dollar value of an oz of gold.
They are denominated in US Dollars and the supply is not the amount of gold or silver on the planet, but how much the US minted into eagles.
Also, thank you for bringing these ridiculous coins to my attention. Do you know how many eagles there are in existence interms of their dollar value?
Best regards.
P.S. I’m flattered but don’t call me sir, it gives those deserving of the title an undeserved connotation.(Its why i wear the hat)
Hey Cullen,
“Japan debt may quickly become unsustainable” – I thought there wasn’t much to refute?
http://www.zerohedge.com/news/gold-gbp-1092oz-jpy-130890oz-%E2%80%93-imf-japan-debt-could-quickly-become-unsustainable?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29&utm_content=Google+Reader
d,
Isn’t the national debt of Japan, just like the United States, not actually “debt” …but savings in Yen? My understanding (according to MMT) is that the U.S. National Debt should more accurately be called “U.S. Dollar World Savings”
So wouldn’t Japan’s national debt just be “Japanese Yen World Savings” ?
It seems the only people who call that unsustainable are the people who are still analyzes the “debt” as if we are still on the Gold Standard (or any fixed and convertible currency)?
Cullen?
Edit: *analyzing
I think you put that very well.
I also wish we would rename treasury bonds/debt something else that more accurately describes their function.
“Tax Payer Liens”?
Wait! I got it. Treasury debt is “Social Credit for the Rich”.
Ok, Japan isn’t going to default in terms of not being able to make their payments. That is clear! But a declining population, decreasing public savings, a xenophobic population, little government revenue reform and increasing social security is not bullish. Please explain to me how JPY debt and a low level of money supply can exist in tandem with. The way I see it is either JPY yields go up OR the currency depreciates SIGNIFICANTLY, no?
The high value of the JPY vs the USD must have to do with Japan’s favorable trade balance with the USA. No other explanation makes any sense since their interest rates are as low as ours (or even lower).
Ok, so in that case, what happens to the manufacturing industry when a country starts to significantly decline in population? Is a massive cultural change set for Japan?
According to the IMF manufacturing has seen the majority of the country’s productivity gains, the service industry has fallen behind.
If the trade balance starts to tip.. why else could the currency continue to appreciate?
Anyone?
is there something simple here I am missing?
Some people have “made” a lot of US dollars (and other currencies) by purchasing gold and derivatives over the last 10 years. “Made” means they have not converted to US dollars or any other currency. I don’t care whether it is an investment or not. Holding gold means watching the market and politics day in and day out as something may happen that will cause people to sell gold and move away from it on a permanent basis. I guess people don’t do that with Dow Jones.
Alternatively, something could happen that will cause people to move away from the Dow Jones towards gold.
The only things that could end the bull run in gold are real interest rates going sharply positive globally, and/or an end to the fear trade that is motivating so much of the world.
I don’t know about the rest of world, but real interest rates in the USA will probably be negative for many decades to come.
Andrew, I beg to differ. There is a 3rd thing that can drive down the price of gold sharply. That is the occurence of another 2008-like financial crisis, after which the prices of gold and all other commodities fell sharply. If/when the heated tea kettle that is the EU comes to a boil and blows up, then all commodities will fall very sharply, as will stocks and real estate. Look at the correlations and you will see that gold prices, over the longer term, are highly correlated to copper prices and the price of oil. Gold may fall as much as 20% possibly in a 2012 world financial crisis. Only the gov’t bonds of US and Japan will do well, as well as the value of the US Dollar.
Find the balance, grasshopper.
I’m not sure I understand why everyone gets so worked up about saying how terrible gold is. Yes, it’s not money, it’s a precious metal with somewhat limited industrial uses but plenty of other appeals. If you’re a market timer you should have been buying it for a while now since it was undervalued relative to stocks. If you an MPT fan then you’ll like that it’s not correlated with stocks or bonds. Personally I like it because it’s most valuable when things are terrible since along with long dated US Treasuries it’s the panic trade. For the lazy portfolio among you check out the performance of the following over the last forty years:
30% Small Cap Value (VISVX)
20% Emerging Market (VEIEX)
30% Long US Treasuries (VUSTX)
20% Gold (GLD)
I call it Fama/French meets Harry Browne with a sprinkling of Markowitz.
I’m not sure I understand why everyone gets so worked up about saying how terrible gold is. Clearly_Irrational
Because there is no such thing as “value-free investing”.
You buy gold, you support a stupid, fascist money system.
To a large extent, the system has up trapped into doing immoral things but one should not be blase about it.
All forms of money is basically a promissory note where the issuer takes your savings and promises to return them to you and perhaps a little bit extra in terms of interest. You hope that when you get it back, you can still use the returned capital to finance consumption in the future.
If the issuers of money lose credibility their promises are less likely to help you finance the future consumption you banked on. So you look for someone more credible to issue a promissory note, I.e. a different currency. Now you have a risk that this other issuer also loses credibility. You may also have a risk that your consumption is even less correlated with the quality of this other issuer’s promise I.e. currency risk.
So ultimately you look for something which you can exchange for consumption in the future whether it is a one step exchange I.e. gold for food or a two step exchange gold for local currency for food ( food being just one item of consumption)
Gold works well because it well accepted as a long term store of value across the world and is not “someone else’s promise”
Those who don’t understand gold usually have a few illogical arguments to support it
1. Very volatile and prone to long periods of “underperformance” : yes volatile when you measure in dollars which can themselves be volatile with respect to your consumption basket if you look ahead from this point. And this only focuses on about 30 years which is primarily because most people find it convenient to find data for this.
2. It is not actually used for anything. Again, neither are the pieces of paper called dollars. How come people are happy to hold those?
Ultimately, gold is a bet that human nature doesn’t change. Game theoretic outcomes from this point on in democratic societies are predominantly poor for fiat currency systems. Politicians will undermine economic systems to gain votes. Short term ism dominates.
Buy gold as a bet on the stupidity of governments. Those who do think longer term will have unpopular solutions which will be drowned out by “popular” solutions which ultimately lead to a major shock to the system. These longer term thinkers will be systematically eliminated or leave disillusioned from the decision making apparatus.
We human beings alays have a tendency to believe that we are too clever to fall into historical traps again but forget that economic systems are based on human behaviors which cannot be changed by technology, at least the parts that relate to responding to incentives.
You can get angry with gold bugs etc… But they are better positioned to make relative gains in consumption power under their belief system during this period.
I am happy to be long gold for a long time now.
I have not articulated as well as I’d like to but I am curious to see how many people actually pick up on the concepts hinted at above.
Euler, good moniker
You said it very well.
Betting on gold means betting on the printing of paper money to continue. Or betting on the widely held belief that there is nothing wrong in printing money, a belief unanimousle held by all economists and politicians, not because it is true, but because it is convenient.
Buying gold means showing you don’t believe in the fairy tales of the virtues of paper money, controlled by politicians.
It’s a clash of two ideologies – the ideology of the paper-money make believers, vs. the ideology of those who believe in tangible goods.
In the long run, historically, there is no competition at all. All currencies die, only gold lives on.