“Bull market or bear market? Below we see a listing of the year-end cost of gold denominated in Federal Reserve Notes (these notes are now commonly called “dollars”). From a market standpoint, we’re looking at one of the greatest bull markets in history. But ironically, referring to “dollars alone,” this is one of the worst bear markets I’ve ever seen.”
“Bear market? Sure, back in the year 2000, for only 273 dollars you could buy one ounce of gold. But by 2012, you needed over 1600 dollars to buy the same one ounce of gold. The eternal value of gold doesn’t change. It’s the purchasing power of the Federal reserve note that has changed.
The price of gold in terms of “dollars” has now risen thirteen years in succession. But what is even more remarkable is the fact that most Americans have totally ignored (even despised) this remarkable bull market. Let a stock rise seven or eight years in a row, and it will be the talk of Wall Street and the talk of every social gathering in the nation.
Yet this amazing bull market in gold stands alone, sneered at and almost hated. I’ve been in this business for over 60 years, and I’ve never seen anything quite like it. However, I do think I know something about human nature. What I’ve learned about human nature is that it doesn’t change. For instance, if a stock creeps up year after year, sooner or later the crowd will discover it — and then they’ll pounce on it, ultimately sending that undiscovered stock far above its reasonable price.
My belief is that somewhere ahead, the crowd will latch on to gold. Then, as disinterested in gold as they are now, the crowd will pile into gold with the same frenzy that overtook the storied “49ers” when they packed their bags, kissed their wives and kids good bye, and headed West in search of gold.
Gold is the only item that elicits both greed and fear. The greed factor is so well known that I don’t have to explain it here. But the fear factor only arises when men (and women) see the “value” of their money disappearing. Nothing concentrates the mind as dramatically as seeing the purchasing power of one’s hard-earned income and savings being ruthlessly destroyed.
As I write, Ben Bernanke’s Federal Reserve is systematically shaving off the purchasing power of the dollar in the same way that you can peel the layers off an onion. The US has been in the process of constructing the greatest credit bubble in history. The world has never seen anything like it.
This enormous bubble is now being attacked by the worldwide forces of deflation. Fed Chairman Bernanke is terrified by the mere thought of deflation. Bernanke will not stand for deflation. He has said as much. And he will attack deflation and crumbling asset prices with all the inflationary power at his command.
As the ocean of new dollars pours out of the computers of the Federal Reserve, the purchasing power of the dollar erodes. It erodes slowly at first, but as the river of dollars turn into an ocean, slowly-rising inflation segues into a monster. Finally, the crowd recognizes what is happening to their money.
The loaf of bread that cost a dollar last year suddenly costs four dollars. The cup of coffee that cost a dollar last week goes on special today for two fifty. The college tuition that cost four thousand dollars now costs sixteen thousand and there’s the extra for a dorm. You’re suddenly paralyzed. A light bulb in your head starts to glow. And just as suddenly, the mad, frantic rush for gold is on.
Old timers shake their heads knowingly and repeat the old saw, “There’s no fever like gold fever!” And the rush for the yellow metal turns into a full frenzy. Even as I write, the subtle but tell-tale signs of “gold-fever” are seen and heard. New gold funds and new gold ETFs are started.
Full-page advertisements appear in the newspapers, drawing attention to the loss of purchasing power in the dollar, and lauding the advantages of owning gold and silver. Gold vending machines appear at airports and in European and Asian department stores. Pressure is rising to force lawmakers to elect gold as legal tender.
On March 29, 2011, the state of Utah passed a law stating that gold and silver will be legal tender in the state of Utah. Imagine, just imagine — gold being treated as real money! That alone shows us how far and how completely insane the nation’s attitude towards gold and silver has become. Gold has been treated as money for 3,000 years. “As good as gold” is a well-known expression. Yet, today in the US, gold is not considered to be legal tender.
No fiat money has lasted for as long as a century. The US has had prior experience with fiat money — the Civil War Greenbacks, the “Bills of Credit” of the original American colonies, the ill-fated Continentals during the Civil War. None of these have survived, and neither will the Federal Reserve notes that we now refer to as “dollars.”
I dislike falling back on the morality argument, but consider this. I may work a lifetime for five million dollars. Yet some academic working for the Federal Reserve can press some keys on a computer and create ten billion dollars instantly without working up a sweat. Is the ten billion dollars he creates moral money? Did anyone work for the money? Did anyone take a risk for the money? Did anyone drop a bead of sweat for it? No, then I claim it is immoral and actually evil money, and as such it is doomed.
The only power evil has is the power to destroy itself. I affirm that the Federal Reserve note is doomed. When the Federal Reserve note goes down the drain, all fiat money in the world will go down with it. Today information travels around the world with the speed of NOW. People around the planet will see that fiat money is a fantasy and a counterfeit fraud foisted upon them by unconscionable and unscrupulous bankers. It is then that the crowd will turn to gold, in much the way that people turned to gold back in 1978 to 1980.
Now this may be “far out.” I’m reading a lot about silver and its huge short position. I hear that the silver shorts are bigger than the amount of physical silver that is readily available. The silver mining stocks have already surged. And I wonder if silver starts to boom, whether that action wouldn’t rub off on gold? Hmmm, it’s a thought.”
To subscribe to Richard Russell’s Dow Theory Letters CLICK HERE.
About Richard Russell
Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.
Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron’s during the late-’50s through the ’90s. Through Barron’s and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-’66 bull market. And almost to the day he called the bottom of the great 1972-’74 bear market, and the beginning of the great bull market which started in December 1974.
The Letters, published every three weeks, cover the US stock market, foreign markets, bonds, precious metals, commodities, economics –plus Russell’s widely-followed comments and observations and stock market philosophy.