russell on gold and the dollar

  1. 374 Posts.
    This, clipped from the latest forthnightly news letter...

    the question can be asked,"Has gold been going up too rapidly? Is gold ready for a correction or at least a consolidation while the moving averages come up to meet gold?"

    And I’ll tell you the truth- I don’t know, I really don’t. So my only advice is to hold your gold and your gold stocks and allow the bull market to do its work. In a bull market values increase through time. So give it time, repeat, give it time. Trading in and out during a bull market seldom bears fruit. The best process is to take your position in the bull market, and simply add to your position on all corrections. Which is what I’ve been recommending as this bull market in gold evolves.

    As I write, gold is overbought and should probably back-and-fill or correct until the overbought situation is corrected. What do I use for gauging whether
    an item is overbought or oversold? I use the stochastics, which you can look up on the Internet or check on the site. At any rate, take my word for it, gold is overbought. I’d say that if gold can hold above 345 while it corrects its overbought situation, that will represent a strong performance.
    The next chart (page 6) is a monthly chart of the Dollar Index. This may be the most important single chart of the current market.

    Remember, the dollar is the world’s reserve currency. Every central bank in the world holds part of its reserves in dollars. Oil is bought in dollars. Gold is bought in dollars.

    Page 6:

    A weak dollar is therefore the concern of almost everyone everywhere. Such is the importance of a reserve currency. The path of the dollar on this monthly chart is clear enough. The Dollar Index topped out in January of 2002. It has been going down ever since. We see the initial big break, then the consolidation of June
    through November. In December the Dollar Index broke out of the consolidation to the downside.Last week the Dollar Index fell to a new

    The size of foreign holdings of dollars is incredibly high -approximately $8,000 to $9,000 billion. This compares to holdings of $200 billion in the 1980s. It requires massive capital inflows to offset these holdings.

    The dollar, in my opinion (and I’ve said this repeatedly) is the Achilles Heel of the whole US economic situation. One of the gauges of this situation is GOLD. That is why the study of the gold trend is so crucial here. The higher gold climbs, the less confident the market is of the dollar. Conversely, the lower the dollar, the more important it is to have a position in gold.

    Technically, note that the 20-month moving average of the Dollar Index has not yet even crossed below the 40-month MA. It looks almost certain that this will
    occur. When it does occur, the dollar will be officially labeled (by me, of course) in a major bear market. Not a pleasant thought, believe me.

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