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    Richard Russell On Gold

    What's the best rule in investing? Here it is dear subscribers, it's FOLLOW THE MONEY.

    I'll give you an example. I'm going to use gold.

    Around January 2001 when gold was selling at 255 there was almost no interest in gold. Then, as gold began to rise, old-timers like Richard Russell noticed the rise, noticed the moving averages looking bullish, and we advised buying gold. We were simply following the money. But Wall Street's experts talked gold down and told us that the central banks was "selling the junk" so why in the world should anyone buy it? But as gold continued to rise, gold began to elicit interest from other more-intelligent experts, and today on CNBC World I heard a ten minute serious discussion on gold. Why the discussion on gold at this time? Only one reason. The reason is that gold has been rising in price, and despite all the stupid and uneducated comments, the rising price of gold is now starting to generate serious interest. It's simply a case of FOLLOWING THE MONEY. The world is beginning to follow the path of real money.

    Here's another interesting example of 'follow the money.' Saudi Arabia is beefing up its forces. Newsweek reports that to strengthen its ties with the White House, the Saudis have retained the services of a high-powered law firm. Which law firm? Well, surprise, surprise, it's the law firm of former Texas GOP congressman Tom Loefler, whose firm will be paid $720,000 a year. Loefler is one of Bush's top moneymen. In fact, Loefler headed up fund-raising for Bush's first gubernatorial campaign. Loefler is also close to VP Cheney.

    History shows that gold travels in the direction of the most powerful nations. For years the US attracted the world's gold. Then gold started to leave the US during the '60s, and in 1971 President Nixon shut the gold window. Foreigners were no longer allowed to call in US gold.

    So who is accumulating the world's gold now? Where's the money going? The word I hear is that the money is going to China and Asia in general. Recently (coincidence?) China opened the Shanghai Gold Exchange, and it seems that China is now encouraging its 1.3 billion population to buy gold. Now why would the Chinese, who have been gold-savvy for thousands of years, do that?

    Then we hear the Gold Dinar has been instituted by Malaysia and soon all Muslim nations may be doing their transactions in gold. Hey, why would the Muslims be so interested in a gold currency. Competition for the dollar? Gosh, there's a thought.

    As I write this morning the dollar has fallen to a new low and gold is fluctuating around its high. But gold has a technical problem. Looking at the stochastics, I can see that gold is heavily overbought. It needs a rest. True, an item can stay overbought, particularly in a bull market. But the overbought status of gold may act as a brake on gold at the present time. Furthermore, as I have explained, the Commercials have taken a huge short position against gold.

    In view of the above, I would say that if gold can simply hold above 345, and in doing so work off its overbought position, it will be doing very well.

    I want to add a few more words about gold. I realize that most of my subscribers now hold some kind of gold, the stocks, the metal, options, futures, I can't know for certain. But here's what I want to say.

    Gold is in a primary bull market. Gold, real money, is a very emotional item, in that the central banks are afraid of it, the Austrian economists love gold, people who believe in the US Constitution love gold, inflationists hate gold, certain nations sell gold, other nations lust for gold, men throughout history have lived and died for gold, armies have fought for gold.

    The reason, gold is the only money that has held its value over the course of history. Gold represents permanent wealth. This has occurred in the face of the fact that every paper currency in history has ultimately sunk to worthlessness.

    In other words, gold has its detractors and its admirers, millions of them on both sides.

    But gold is in a very peculiar position today. The central banks of the world are frightened of gold because if gold rises, if it takes an increasing amount of the central banks' paper junk money to buy an ounce of gold, then what the hell is wrong with their fiat paper money? It's a question and a situation that scares the devil out of the central banks.

    So we can expect a lot of erratic action from gold as the various factions use their propaganda and their arguments for or against gold.

    But the Russell position is this -- Gold is real money -- while dollars and euros and yen and kronos are man-manufactured pseudo-money. If central banks can generate "money" without sweat, then we know that their money is a lie. If it takes the sweat of thousands of men and multi-millions in capital to dig gold out of the ground, we know that gold is something more than a fantasy "legal tender" item produced by the central banks.

    So here's what I'm getting at. Now is the time to accumulate gold and gold stocks. The hard part will be to sit with our gold and gold stocks while the great battle rages. Declines in gold will represent opportunities to accumulate more gold and gold items. Time is on the side of those of us who accumulate gold because in a bull market a given item will appreciate through time.

    As the Fed generates an increasing amount of credit and paper in their battle to offset the forces of world deflation, the value of gold will increase. It's simple -- central banks are generating vastly more paper than the gold mines can produce in comparable gold values.

    As gold climbs, be prepared to listen to the propaganda of the gold haters and those who fear gold. "It's too high," "It's being manipulated higher," "It's being bulled by war scares," "It's just a short squeeze."

    Get used to it -- there's a huge contingent who have a vested interest in gold going nowhere. They possess loud voices, but they're losers. They're losers because they're on the wrong side of the truth.

    Richard Russell
    Editor-in-chief - DOW THEORY LETTERS

    January 13, 2003
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