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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.

Monex Bullion Investor