Market Review: Russell Says undefined Gold To Reach $556

The Dow Jones Industrial Average put the finishing touches on another winning month by advancing 2.3% last week to 9,80. The Nasdaq performed even more brilliantly last week, gaining 3.6% to 1,932. October wasn’t such a frightening month after all, although it scared the daylights out of a few short-sellers.

The Dow and Nasdaq both defied the ghosts of Octobers past. "With Halloween passed," remarked Barron’s Michael Santoli, "the market has made it through its toughest seasonal period unscathed. September and October are historically the worst for stock returns, but since the end of August the Dow is up 4.1% and the Nasdaq ahead by 6.7%."

Meanwhile, the gold market is compiling an equally impressive record, having advanced six out of the last seven months. The yellow metal added only a dime during October, but has gained more than $45 since the end of March.

The stock market and the gold market do not typically track together. And it’s a bit mysterious that they would be doing so now. But their apparent synchronicity is more accidental than indicative, according to Richard Russell, editor of The Dow Theory Letters. As Russell sees it, the pricey stock market will soon veer off into a ditch, while the gold market will continue chugging along.

Russell, appearing via live video-feed from San Diego, told the crowded auditorium of conference-goers in New Orleans that the gold bull market is for real and that it is in its infancy. It’s bullish technical picture is a mirror image of the stock market’s, he explained.

To support of his assertions, Russell noted, "The S&P 500’s 20-month moving average has crossed down through its 40-month moving average, thereby indicating that stocks remain in a primary bear market.

"But look at the picture in the gold market," Russell urged the audience. "The picture is a mirror image of the stock market. The 20-month moving average of the gold price is crossing UP through the 40-month moving average, which shows that gold is in a primary bull market."

"Gold is now in the accumulation phase," he says. "Gold is moving to strong hands from weak hands…$556 per ounce is the first target."

Russell colored his dispassionate technical analysis with a bit of macro-economic fire-and-brimstone. "The system of fiat money is really immoral, almost evil. It will not last. Most of us will live to see the complete destruction of the U.S. dollar," the octogenarian stack market observer predicted. "When the dollar collapses, all hell is gonna break loose in the system. Any questions?"

We wished to ask a couple of questions, like when, precisely, the dollar would collapse and how high the gold price would soar. Unfortunately, a technical glitch prevented Russell from hearing any audio feed from New Orleans. So our questions went unanswered.

Regards,

Eric Fry,
The Daily Reckoning

Novemeber 01-02, 2003

P.S. Your New York correspondent, while visiting New Orleans, has been sampling a few of the city’s many splendors and diversions.

He has strolled along the banks of the Mississippi, ambled through blocks of Chinese-made tourist-trinkets at the French Market, toured the ante-bellum mansions of the Garden District, and bellied-up to the blackjack tables at Harrah’s casino. He also spent part of Halloween night shuffling along a beer-drenched Bourbon Street. He inched along the jam-packed street, shoulder-to-shoulder with a swarm of cigarette-smoking, beer-swigging, scary-looking folks…only some of whom were wearing costumes.

Everywhere he went, your New York editor observed unbridled consumption. Nowhere in this tourist town did he observe the slightest hint of recession. The line outside Acme Oyster Bar was as long as ever. And the line for a $5 Starbucks cappuccino inside the Sheraton snaked out into the lobby even farther than it did last year.

Indeed, the local economy is doing so well, that your New York editor had to wait in line for a chance to lose his money at the blackjack table.  It’s easier to find a parking space in Midtown Manhattan than a seat at a blackjack table in Harrah’s. One night, while your New York editor was busy winning and losing chips at a blackjack table, a Daily Reckoning reader pulled up a stool at the same table and started playing. After losing a few hands, she turned and said, "You know Eric, the only thing worse than spending money you don’t have on things you don’t need is losing money you don’t have at a blackjack table."

"Yeah, I guess you’re right about that," came the reply. "Maybe it’s not so bad to spend money you don’t have on things you don’t need. At least, after you’ve finished spending the money you don’t have, you’ve still got the things you don’t need…

"I gotta say," as he hit a 12 and busted, "that gambling away money that DO have is not very fun either."

"Sure," she chuckled, "But at least you and I know that we are gambling when we are sitting here at a blackjack table. The buyers of tech stocks selling for 60 times earnings think they’re investing."

P.P.S. Addison and Bill were signing copies of Financial Reckoning Day here at the conference. There was quite a bit of excitement surrounding the book…

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THIS WEEK in THE DAILY RECKONING

ALL SAINTS’ DAY (10/31/03)
By Bill Bonner

"…We celebrate the First Amendment now; we do not practice it. Likewise, America celebrates liberty. It is like Halloween…an empty expression…a hollow festival…something to feel good about. No reflection required. No risk, either. But what would the ghosts of Jefferson and Adams think of us?…"

THE TRAGIC DEATH OF CURTIS MOBERLY (10/30/03)
by Dan Ferris

"…I remember what the Christian brothers called us as high school sophomores: wise fools. That’s what investors are today, and what Curtis Moberly was – may he rest in peace. Wise, having had a little experience. Fools, not realizing they haven’t had enough experience. Moberly won’t get fooled again. I bet investors will continue to get fooled for as long as there’s a stock market. All across America, investors are about to slide into an oncoming price slide, the way poor Curtis Moberly slid into an oncoming Subaru…"

THE TROUBLE WITH THE WHOLE WORLD (10/29/03)
by Bill Bonner

"…Digital Man is stumped. To him, everything works by simple cause and effect logic. When the cost of borrowing goes down, the demand should increase. And yet, not even giving money away could persuade Japanese business and consumers back into the credit market. But Analog Man, more heart than brain, understands. He knows it is his fault. He knows that were it not for him, the world would be a different place…"

CLAMOR FOR A CURE (10/28/03)
by Sean Corrigan

"…In a truly free market, where business concerns are free to compete, replace, and improve each other, profits made by the foresighted and fortunate will, on balance, outweigh the losses made by the foolish and foredoomed. And so the seed corn for future progress is sown…"

UNDER THE ECONOMIC SUN (10/27/03)
by the Mogambo Guru
"…The big problem with economics is that there has been nothing new under the economic sun for thousands of years. There has always been government, and taxes, and buying and selling, and borrowing and lending, and investing and interest, and sleazy powerful people enriching themselves, running off into the night with the company payroll, and bosses sexually harassing employees, and of course graft, and corruption, and nepotism, and so on. It wouldn’t surprise me to find that this is actually where the phrase ‘some things never change’ comes from. And all of them trying to live at the expense of everybody else…"