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Richard Russell: Fed will do anything to keep gold down
By Richard Russell
Dow Theory Letters
Wednesday, September 9, 2009
As the great Bob Dylan song goes, "There's a battle outside, and it's raging, it will soon shake your windows and rattle your walls, for the times are a'changin'."
The battle is obvious -- it's the primary forces of overproduction and deflation vs. the Fed's obsession ("whatever it takes") to fight deflation and to produce asset inflation.
The one signal for rising inflation that the world understands is rising gold. The central banks do not want to see the gold signal, which tells the world that inflation is in command.
What the Fed really wants is asset inflation in housing. Housing is collateral for almost everything in the nation, and the Fed and Treasury are frantic to get housing prices heading higher.
Yesterday most assets got the message. Oil was higher, the base metals were higher, the stock market was higher, but gold (pressured by forces we know not from where) failed to close at the highly significant number of $1,000 an ounce or better. Incredibly, after being as high as $1,009 during yesterday's session, gold closed at $999.80 -- just 20 cents below $1,000.
Coincidence? Mistake? Random chance?
Hardly. Tto me it was obvious that the Fed did not want to see the following headline in the newspapers: "Gold closes above $1,000."
Whatever it takes, it seems, will be utilized to hold the only constitutional money down.
When a can is placed on a stove burner, the pressure builds up inside the can. At some point, we know not exactly when, the can will explode and the pressure will be released. That, I believe, is where gold is.
You can threaten gold with forthcoming central bank sales. You can sell gold in quantity. You can smother gold with short sales. But the primary trend of gold will win out. It will be expressed today, in a month, or in 2010. The trick for us is to hold onto our position -- don't trade it, don't move in and out with it, don't hold so much of it that you get the heebie jeebies every time it dips $10.
The primary trend of gold is up. We're riding the bull. The bull will try to shake us off his back. We'll hang on.
The word is that China wants to load up on gold while diversifying out of its huge position in dollar-denominated securities (T-bonds). China's problem is how to accumulate gold secretly without driving the price up. This has led to what is now called "the China gold put." Every time gold backs off, China is in there to scoop up what is offered.
On top of that, China is urging its over-1 billion population to buy gold and silver.
Finally, China is now the world's biggest miner of gold. China, in its patient way, is preparing for the future. The future that China sees is a world without fiat currency or a world in which its own renminbi is the world's reserve currency.
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