QUESTION: Gold has been soaring. Happily I hold a lot of gold How do I turn my higher gold into profits?” –S. Kagem Brooklyn, NY.
Russell Response: This may come as a shock to you, but you become wealthier as your gold rises in price. You don’t have to sell your gold to record a profit. Just sit on your gold, and if it continues to rise you will be that much wealthier. The other alternative is to sell your gold for — for what, fiat dollars? Would you feel richer or more important, would you feel safer, if you held dollars instead of gold? Figure your wealth in terms of how many OUNCES of gold you own. If you own enough gold, you will always be rich, no matter what the stock market does or whether we’re in a depression or a boom.
Below we see the telltale ratio, better known as ‘where to put your money.’ Here’s the ratio of the Dow to gold, the recent surge in the ratio is in favor of gold. Believe the chart; unlike governments, charts don’t lie.
Wall Street is a two-way street. Gold has been up 12 out of the last 18 days. So it’s probably time for a correction. Hold off on buying. Remember, if you are overly emotional or greedy or impatient, the market will cost you.
Below is the daily advance-decline line for the NYSE. Mystery, the Dow has been advancing for the last few months, but note that the advance-decline line has topped out. The A-D line follows the direction of the majority of stocks on the NYSE. The chart tells us that the majority of stocks topped out and have slumped, even while the Dow was rising. This is how a diversified holding of stocks probably produced paper losses for you, even as the Dow and the S&P were rising. Once the “internal market” tops out, you’re going to show paper losses, regardless of what the big stock averages do.
The whole world has its eyes on China. The word is that “China, with its immense buying power, will save us, and drive prices up.” Maybe so, but I look at the chart below, and I doubt that China is going to “crank up the world’s economy.” China is battling a land and real estate bubble. Prices for houses in China are going wild, and the Chinese government is raising bank reserves and making it more difficult to finance a home in China. At any rate, the FXI 25 is often referred to as the “Chinese Dow.” From the looks of it, the Chinese economy could be running into trouble. The Chinese authorities most definitely do not want a real estate bubble, and they are seeing to it that it doesn’t happen.
Below we see the important and widely followed Shanghai Composite. From late-November through to Tuesday this benchmark index has dropped 20%, which, by modern standards qualifies it as a bear market. China is going to give the world a few surprises in coming months! This isn’t a hunch or a rumor or Richard Russell guessing, this is the markets talking.
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