Sophisticated investors are beginning to distrust ALL fiat or central bank-created "money." Moreover, they distrust a situation where central banks all over the world are creating huge additional amounts of their phony money. Knowledgeable investors are starting to place all fiat money into a single class. And they distrust that class. They distrust it because they think of it as "junk money gone wild." Their reaction -- turn in your junk money for the one type of intrinsic money that has represented wealth for 6000 years -- gold.

I've written many times that gold seems to be imbedded into the DNA of mankind. Today, with the world in turmoil, rich men may be saying to themselves, "I don't know what's going on any more, and frankly, I don't know where I'll be in ten years. But if I own a thousand ounces of gold, I'll know I'm rich. I don't know what the price of gold will be when this whole mess is over, but I know I'll still be wealthy if I own a thousand ounces of gold." And that, to my mind, is some of the thinking behind the rising price of gold and maybe even of stocks (see Buffet quote above).

The other situation I've been thinking about is where the greater safety lies, in gold or in stocks. In his column in today's New York Times, Paul Krugman calls what we're going through the "greatest collapse in world trade in history." Ordinarily, that would call for a bear market in stocks. But the enormous expansion in liquidity has trumped the fundamentals. The Dow continues to rise -- as an ocean of money is flowing into the stock market. The rising Dow rubs off on other stocks as they start to look "cheap" compared with the stocks in the Dow.

But the fundamentals in the economy are leaving big holes in the bull arguments. Can a nation be prosperous when millions of its citizens can't find jobs? Can a nation be prosperous when it can only sell the world (exports) when its currency is weak? Can a nation be prosperous when it's losing its manufacturing base? Can a nation be prosperous when there's a disconnect between its stock market and its economy? Can corporations be doing well when their so-called profits are higher but their revenues are lower?

But remember, in this business we don't buy fundamentals or logic, we buy direction and the flow of funds.

Sophisticated investors are asking those questions and are opting to buy and own gold rather than putting their money into stocks; which is the reason why gold is outperforming stocks on a relative strength basis. "Follow the money" is the essence of investing, and in a "financial world gone mad," an increasing amount of money is going into gold.

r.

www.dowtheoryletters.com

(858) 454-0481

Richard Russell’s Dow Theory Letters

PO Box 1759

La Jolla, CA 92038

17 Letters Per Year