At 90 years old and still going strong, the Godfather of newsletter writers, Richard Russell, warned about “the great destroyer,” war, and silver. The 60-year market veteran also discussed major markets, gold, hyperinflation, and what is “dirt cheap” that he believes investors should be buying right now.
Russell: “From the 1830s to the 1930s, almost all the important currencies were on the gold standard and were backed by gold. The sovereign had a gold content of .2355, and was minted in seven countries including Australia, Britain, South Africa and Canada. In other words, the whole world was on the gold standard. This was a period of extraordinary stability among world currencies.
But war is the great destroyer of currencies. When nations wanted to spend more than the discipline of gold would allow, they turned to fiat currencies and printed what they needed out of a computer and thin air. Germany was a famous offender when it printed marks by the barrelful, during which time hyperinflation destroyed the purchasing power of the German mark. Today we have a comparable example in the US, which has not only left the gold standard, but to cover up its inflation, is depressing the price of gold through paper gold trading on the COMEX.
Because of our out-of-control US spending, the US is covering its outrageous debts by printing money.
The US is now $17 trillion in debt, which is being carried at near zero interest rates. Looking to the future, the US has two choices: one is to renege on its debts, which is unthinkable, and the other is inflation or hyperinflation. So far, the US has chosen the path of inflation. If continued, this will lead to the purchasing power of the dollar declining to close to zero and the dollar becoming next to worthless since it won’t represent anything but the full faith and credit of a bankrupt nation.
The only protection we have against the inflationary policies of the government is to turn to the items which historically, over 5000 years, have held on to their purchasing power. The items I’m referring to are physical silver and gold. Ironically, even here our modern financial alchemists have conjured up counterfeit precious metals, which we call “paper” silver and gold. There is far more paper gold than there is physical gold, a predicament that some day will come back to haunt us. Our best and safest protection in the current inflationary world is physical precious metals.
In reading a dozen newspapers every day, I receive a collection of disjointed stories that are impossible to sort out. Therefore, I leave it to the stock averages to tell me the story. Below we see a story that I don’t like. This is ten years of the Industrial Average which has been climbing beautifully above a rising trendline that started from the 2009 low.
The reason this chart bothers me is that the Industrial Average has fallen cleanly below its trendline. At this time I can’t tell exactly what this breakdown means, but to put it in simple terms, it can’t be good. My conscience is clear, however, since I’ve begged my subscribers to be in items of pure wealth, and by that I mean silver and gold.
Below we see a chart of gold relative to the DJIA. Here we see what I term a huge head and shoulders bottom. Over the last few days, we see a clear breakout in favor of gold over the Industrial Average. This does not mean that the Dow must go down, but it means on a relative basis gold is doing better than the Dow.
The chart below shows gold breaking out above its two moving averages. Note that the formation is a head-and-shoulder bottom, and a huge breakout will occur if gold closes above 1340
My current recommendation is that my subscribers buy physical silver. Silver, currently under $20 an ounce, is dirt cheap.
Late Notes — Today’s Wall Street Journal featured a bullish article on the gold miners. It seems to me that news of the bullish picture in Gold is coming out into the open.”