Richard Russell: Fed will do anything to keep gold down

Submitted by cpowell on Fri, 2009-09-11 01:49. Section: Daily Dispatches

By Richard Russell
Dow Theory Letters

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.