Q&A with Russell

Dow Theory Letters (11/09/2009)
Question: Wait Russell, why do you think there will be a third speculative phase for gold? Many experts, even gold experts, are saying that "gold is overpriced now."

Answer: First, I've never seen a big bull market that has not ended with an emotional, wild third phase. Just as gold got ridiculously undervalued (below 300) in 1999, it will become overvalued in the years ahead. Human nature tends to go to extremes. And there's "no fever like gold fever."

As gold closes at record highs day after day, it makes the newspaper headlines. People (after 20 years of a bull market) are finally noticing gold, particularly as it climbs above 1,000). Ninety-six years of Fed anti-gold propaganda is losing its clout (the Fed was established in 1913). In London, Harrod's department store is selling gold bars and coins to the public. How long will it be before gold is sold in stores in the U.S.? Central banks who were sellers of gold for years have done a flip-flop. Now central banks are swapping their unwanted dollars for gold (they politely call it "diversification"). As for the rest of the IMF gold that India did not buy, China, Russia, Sri Lanka, and Brazil are lined up and eager to buy it. The cold reality of rising gold prices is demolishing decades of anti-gold nonsense put forth by the central banks of the world.

Yesterday's New York Times featured a full-length article on gold, headlined, 'Inside the Global Gold Frenzy.' I noted that they called it a 'frenzy,' but did anyone ever talk about the 'frenzy' to accumulate dollars? The article runs, 'In the United States, ads promoting high prices for gold are regular fodder for late-night TV spots, where buyers are setting up tables at shopping malls or hosting gold-buying gatherings in private homes—like recession era Tupper-ware parties. . .Everyone and their grandmother has a sign out saying 'We buy gold,' said Ron Lieberman, the owner of Palisade Jewelers in Englewood, N.J. He estimates that 10 times as many people come into his store to sell gold as when the metal was selling for $300 an ounce at the beginning of the decade."

Russell Comment: The public is hardly bullish about gold. If they were, they'd be buying gold now instead of selling it a the "new, fat price" of over $1,000 an ounce.

I attended a party yesterday, and at a gathering of seven people at my table I was asked, 'Russell, what should we buy now?' I answered, 'Gold coins.' Every face looked blank. It was as if I had told them to buy a hippo. Nobody at the table owned an ounce of gold.

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