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How do you explain gold’s relentless rise?

*Dow Theory Letters, Richard Russell, May 30, 2006

“The current action of gold is remarkably persistent. I’m convinced that, in its own mysterious ways, gold is telling us something. The smartest people in the land have been warning day after day that gold is overbought. The gold-bugs of yesteryear, basing their actions on the wild and erratic gold bull market of the 1970s, have taken their profits and are on the sidelines. The technicians have warned of a parabolic rise in gold and they too are out and on the sidelines. The gold shares have not kept up with the metal — a non-confirmation, warn the market experts, who are on the sidelines. Yet gold continues its stubborn, almost “shocking” rise.

So who’s been buying gold? I think it’s been large interests, probably central banks who are “diversifying” out of dollars, plus possibly limited buying by hedge funds — and, of course, the people of India and China and the Mideast.

Besides a forecast of coming inflation, what could gold be telling us? The thought of a dollar devaluation comes to mind. The IMF wants a dollar devaluation. The G-7 ministers want a dollar devaluation. The world’s central bankers want a dollar devaluation. Is that what’s in the wind? Is the Chinese renminbi too cheap or is the dollar too expensive? One thing is clear — the US’s massive current account deficits cannot continue without bringing on trouble — domestic and international trouble. This, I believe, may be what gold’s relentless rise is telling us.

I might add that I’ve seen many parabolic rises in my lifetime. They are almost always accompanied by great excitement, wide publicity, elements of hysteria. Not so in the current gold rise. This rise seems strangely quiet, discreet, subdued. This is a new kind of rise. It’s a day-after-day rise with little excitement or even interest on the part of the public.

*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.