Why is gold rising against all other markets?
*Dow Theory Letters, by Richard Russell, February 19, 2008:
"You see, something very unusual and important is going on. What's
happening is that gold has been rising against almost everything else.
You name it, and gold is rising against it. Why is that? That's a
complex question, but I want to give you my reasoning. Gold is the
universal, time-honored standard of wealth. Gold is pure, tangible
wealth, and since pure wealth cannot be bankrupted or destroyed, gold
is totally 'safe.' Gold is so safe that it doesn't need to pay any
interest to tempt people to hold it. Wise men and women don't hold gold
for income any more than they hold a ten-carat D color diamond or a
Picasso picture for income. They hold these items because they
represent timeless wealth.
But then I ask myself this question -- 'Why here in the year 2008 is
almost everything declining in terms of gold?' And this is my answer --
the world is now dealing with deflationary forces, particularly due to
low-priced global labor and the great outpouring of cheap manufactured
goods, in other words, oversupply. The governments (politicians) of the
world will not accept deflation -- in fact, they're scared to death of
it. Let deflation take over and the politicians will be voted out or
kicked out of office. When deflation and rotten business and
unemployment enter the picture, the politicians, blame the central
banks. The central banks are fully aware of the unspoken political
threats, and they do what they do best. They counter the forces of
deflation and contraction by printing paper. Currently, this
inflationary printing of paper is systematically reducing the value of
almost everything against the one immutable single standard of value --
GOLD.
Of course there are variables. Chinese stocks are not the same as a
barrel of oil or a parcel of real estate in San Francisco. But, it
doesn't matter what it is you're talking about -- it's all losing value
against gold. That's the great unspoken story of today. Massive
quantities of various currencies are washing across the face of the
earth. The result is that almost all items and categories are losing
value against the single immutable standard of wealth -- gold.
This presents us with a huge problem. The logical strategy for you and
I would be to put all our assets into gold. But that would be
impractical. We buy our food with Federal Reserve Notes known as
dollars. We pay our rent and our taxes with dollars. We do almost all
our transactions with dollars. Try paying your next restaurant dinner
bill with a little clipping of gold. The guy at the cash register won't
accept it, and worse yet -- he'll probably call the cops.
No, in practice, you need dollars. You need dollars to live. There's no
getting around it. Furthermore, you've been taught not to put all your
eggs in one basket. And that applies to gold. Sure, based on the charts
below you should probably have all your money in gold, but that 'feels
too risky.' You just don't feel comfortable with it. So if you're a
subscriber to Russell's writings, you buy some gold -- as much as you
feel comfortable with, and you tell yourself, 'Well, I've got more gold
than 99% of the rest of the poor fools in America, and maybe that's
enough.' Of course, it isn't, but that's what you tell yourself."
"Gold very close to breaking out to a record high. If gold can close
above 940, it should be able to make it to 1000 within months or even
weeks."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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