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Dow Theory's Russell figures out that gold is manipulated

Section: Daily Dispatches

Better a decade late than never.

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Russell Endorses Gold Manipulation Thesis

By Peter Brimelow
Monday, April 25, 2011

NEW YORK -- Dow Theory Letters' octogenarian Richard Russell has endorsed the radical gold-bug thesis: The gold market is manipulated. He says it won't work -- but the ride will be rough.

Russell is a much-respected veteran, with a remarkable record of calling some (not all) major market junctures.

Russell is a long-time gold bug, but for traditional inflationary reasons. He resisted the new argument, developed by writers associated with Bill Murphy's Le Metropole Cafe website, that the gold price is manipulated by a Washington-Wall Street alliance.

... Dispatch continues below ...


Prophecy Resource Spins Off Platinum/Palladium Venture:
World-Class PGM Deposit in Yukon

Company Press Release, January 18, 2011

VANCOUVER, British Columbia -- Prophecy Resource Corp. (TSX-V:PCY)and Pacific Coast Nickel Corp. announce that they have agreed that PCNC will acquire Prophecy's Nickel PGM projects by issuing common shares to Prophecy.

PCNC will acquire the Wellgreen PGM Ni-Cu and Lynn Lake nickel projects in the Yukon Territory and Manitoba respectively by issuing up to 550 million common shares of PCNC to Prophecy. PCNC has 55.7 million shares outstanding.

Following the transaction:

-- Prophecy will own approximately 90 percent of PCNC.

-- PCNC will consolidate its share capital on a 10 old for one new basis.

-- Prophecy will change its name to Prophecy Coal Corp. and PCNC will be renamed Prophecy Platinum Corp.

-- Prophecy intends to distribute half of its PCNC shares to shareholders pro-rata in accordance with their holdings.

Based on the closing price of the common shares of PCNC on January 17, $0.195 per share, the gross value of the transaction is $107,250,000.

For the complete announcement, please visit:

But in his last post last week, on Thursday, Russell wrote:

"The desperate battle to keep gold below $1,500 continues. I watched the erratic action of gold near yesterday's close. I'm fascinated to see whether June gold can close above $1,500 or whether the anti-gold contingent can manage to knock gold down (again) below $1,500. The action is now so blatant that it literally screams of manipulation. At its high yesterday, June gold sold at $1,506.50. At yesterday's close, June gold was trading at $1,498.10. It's almost embarrassing to watch the action. What we're seeing is the anti-gold crowd and the manipulators vs. the great primary trend of gold."

Russell explained:

"The battle about gold closing above $1,500 is that once above $1,500, technically gold will be on its way to $2,000. And from there $5,000 will be the target. ... From the anti-gold crowd's standpoint, gold must be held (on a closing basis) below $1,500."

Spot gold reached $1,515 early Monday morning.

The motive for manipulation, Russell argues, can be traced back to the U.S. Federal Reserve's problems in financing U.S. government debt. He writes:

"When you think about it, it's no wonder that Wall Street and the Fed hate gold. Gold exists outside the system. The Fed can't manipulate or create gold the way they do Federal Reserve Notes. When gold rises, as it has been doing, it hoists a red flag over Wall Street, the Fed, and the economy. ... All the lies, corruption, and secrets of the Fed and the politicians can't erase the dire message of gold."

Russell prophesies apocalyptically:

"The gold bears will be defeated. It's only a matter of time. ... We're moving nearer and nearer to the edge of the hurricane. I can feel it in my bones. ... I can feel them caressing my face -- the early breezes. They are blowing gently and hinting of the forthcoming gold hurricane that will sweep across the United States and the planet with all the force and power that was seen when gold was first discovered at Sutter's Creek during the California gold rush of 1849. The gold rush of the 2000s is in the wings."

But when? That's a problem. Russell warns of one possible danger: that "following the end of QE2 [its second round of quantitative easing], the Fed will not immediately jump into QE3. This is feasible, and if it happens, gold could suffer a major correction as the dollar and Treasuries unexpectedly strengthen.

"Therefore, before the great gold tsunami we might have a frightening gold correction that would clean out all the gold skeptics. This 'clean-out' may be necessary prior to the big gold tsunami, and it's a reason to hold some cash and not put all your money into gold at this time. Remember the old adage -- "The market always does what it's supposed to -- but never when."

Russell thinks investors are still in denial about gold. He writes:

"And what do Americans do to protect themselves against rising prices? Easy -- they buy stocks or mutual funds on the theory that higher stock prices will protect them from rising prices."

And he asks: "How does it help you if stocks go higher, and the item that your stocks are denominated in -- is falling apart?”

Gold bugs generally have a dearly-bought respect for the ability of the Fed to pump things up -- short-term. On that theory, Russell has been recently bullish on stocks.

But in his Delphic way he seems to be signaling that the short term is coming to an end.

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