richard russell

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    (from Investment Rarities)

    BEST OF RICHARD RUSSELL

    May 1, 2003

    Ah, there's nothing like a market that opens on news. Today's news -- The euro surged to a four-year high against the dollar.

    Gold, of course, has been "watching" the weak dollar intently. In recent sites, I've been drawing attention to the "head-and-shoulders" bottom that has been forming in gold. Over the last few days I've stated that gold is "working" on the right shoulder of this pattern. The upside breakout from the head-and-shoulders pattern, I said, would come if June gold could rally above 337.50.

    This morning, as the June Dollar Index broke to a new low, June gold rallied over four dollars to a high of 339.00, then backed of a bit but tended to hold in the 337-338 area.

    Subscribers must note how tentative, how reluctant, the gold shares are to react to any better action in gold, the metal. This is typical action during the early phase of a bull market. It's obvious that the public is not in the gold shares (do any of your friends own gold or gold stocks?), and thus gold shares are being bought by only the most enthusiastic element of the "gold-bug" fraternity. This has meant that buying of gold shares has been tentative, sporadic and erratic.

    With years of denigration and bad-mouthing by the central banks of the world, the public is hardly going to turn bullish on gold in a matter of a few weeks or months. It's going to take a long period of "good action" by gold before the public and most funds become "friendly" to gold and gold shares.

    But there's a "good" side to this suspicion and antipathy toward gold. The good side is that gold stocks remain on the bargain counter. Remember, gold mining companies enjoy huge leverage as the price of gold rises. Their expenses remain roughly the same while the price of their product, gold, rises. This is the single reason for holding gold shares as well as the basic product, gold

    But again I want to warn subscribers that holding any item early in a bull market entails a test of nerves. A bull market wants to advance while taking the few possible number of investors with it. How does it do that? It does it by making it very damn difficult on your nerves to hold the right items.

    Richard Russell’s Dow Theory Letters

    PO Box 1759

    La Jolla, CA 92038

 
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