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Why was the full power of gold bullion market released at $850?

*Dow Theory Letters, by Richard Russell, December 3, 2009

These are tough times for Americans. My favorite item to buy and hold is gold, but problem — gold pays you nothing, which is why so many fund managers won’t touch it.  But gold is OK with me because over the last year gold is up 55.4% and over the last 30 days gold is up 14.65%.  I’m not greedy and I hope I’m not stupid, so I’ll forego the dividends in favor of a bull market and rising prices.

But for the average Joe, paying near 1400 bucks for a one-ounce gold coin is a no-no.  Therefore, only those who can afford it are buying gold. So how do the Chinese do it?  They buy small quantities and keep accumulating their gold.  The Chinese tend to be patient while Americans’ attitude is ‘I want it, and I want it now.’

I’ve seen a lot of big bull markets, but this gold bull market contains probably the most persistent and relentless advance I’ve ever seen.

And I ask myself, what’s going on, and what does this mean? Here’s what I think. Gold topped out in January 1980 at a price of 850 per ounce.  After that, gold sunk into a long bear market that took gold down to 295 in 1999.  At the bottom, gold was not only forgotten, it was despised.  In 1999  gold and gold shares were selling at ‘dirt cheap’ prices. G old shares were selling in the $3 to $4 range, so cheap that I recommended buying them as if they were eternal warrants.  From it’s 1999 low, gold headed higher. Y ear after year, largely unnoticed, gold plowed higher.  In January 2008 gold did something that excited gold-followers.   January 2008 gold finally surged above its 1980 peak of 850.  That reminded me of 1954 when the Dow did ‘the impossible.’  On November 23, 1954 (I remember it well) the ‘miracle,’ the Dow closed above its old 1929 high of 381.  From there the Dow headed higher, and 381 was never seen again.

I consider that from 1980 to 1999, 19 long years, gold was bottled up and held back by a vicious bear market.  Just imagine the strength it required in gold to march back from its 1999 low of 255 to its 1980 high of 850.  But having bettered its 1980 high, the full power of the primary bull trend was released.  We’re seeing that extraordinary power now as gold pushes higher day after day.

Recently, gold has closed higher in 21 of the last 25 sessions or 87% of the time.  Of course, by ordinary standards gold is now severely overbought.  But in super-powerful moves, an item can remain overbought for weeks or even months.  Gold is now like a ‘wrecking ball,’ smashing through everything in its way.  On the Comex there’s a huge short interest in the Commercials, in large investors (usually the funds) and in the small investors. Gold is pushing the shorts to the wall as I write. Now we hear stories of Barrack gold closing its hedge book by buying billions of dollars of gold.  We hear of nations standing in line to buy the rest of the IMF gold that’s for sale.  We hear news of various central banks reversing their anti-gold stand and now buying gold instead of selling it.

So far, the only populations that are buying gold are the Chinese and Indians and probably other Asians. As gold flows to China and the developing nations, it’s a sign that the East is growing stronger and the West is growing weaker.  The only policy the US government has regarding gold is stupidly to deny its power and validity.  Example, the Treasury values its huge gold hoard at 42.20 an ounce. The Washington establishment remains blissfully ignorant of the very meaning of gold.”


*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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