Mr. Dines: The Latest On Gold

Written by James Dines
Posted March 23, 2019

Publisher's Note: Mr. James Dines is known as "The Original Gold Bug" and recently nailed a buy signal right near gold's lowest price last year.

Today, we bring you his insight in an excerpt of The Dines Letter discussing the latest on gold.

To your wealth,

Nick Hodge Signature

Nick Hodge
Publisher, Outsider Club

Original gold miners had no idea why gold had its yellow color, unusual for a metal. Albert Einstein’s Special Theory of Relativity explains gold's color. Because of how electron energy levels shift due to Relativity, the metal absorbs blue light, giving the reflected light a yellow hue.

Science News magazine, January 19, 2019

As “The Original Gold Bug” we feel especially comfortable with the precious-metals complex (gold, silver, palladium, and platinum). We are well pleased that our latest “Buy” signal on August 28, 2018 was within only one week from the low! (See chart below). Buying close to a low is a good thing, and you can quote us on that.

22 march 19 tdl gold chart

We are not aware of any other prominent investment adviser in the world who recommended switching out of the market and into precious metals in 2018. At the time, all professionals looked for a drop to $1,100, or even below $1,000. Gold was unloved — except by a few like TDL. Another exception, billionaire Sam Zell agreed with TDL: he’s been buying gold for the first time.

August 2018 was also when FAANGs* and many other high-tech favorites were at maximum bullishness, exactly according to DIGROC (The Dines Rule of Gold Countertrend), about which more is in our books.

Unsurprisingly so, since gold is the ultimate haven during worrying times, the top barometer of events incentivizing haven seekers.

Iranians, for example, hobbled by American sanctions, have been buying gold, albeit at sky-high prices in their local currencies. Last July, when the Iranian rial was collapsing and its government was overprinting so much paper money, Iranians had to pay around $3,250 (137.2 million rials) per ounce, while Americans and most of the free world were paying $1,225. Gold was a great haven against the printing press. This provides an inkling as to how high gold will go worldwide, when governments try to print themselves out of a financial mess.

Gold’s rally since its August 2018 lows has been among the best market performers since then. Some credit this to interest rate rises, a weaker dollar, or declining stock markets late in their cycles — however, we believe the real reason is Mass Fear seeking havens. Even Bitcoin will become a haven again, despite having been given up for dead by nearly all. Therefore it is possibly nearing a bottom these days. By DITPON.

Incredibly, for some abstruse reason, haven money has also fled to Japan’s yen, which is backed primarily by American paper — we consider that absurd. Another example of Mass Fear trumping reason.

Meanwhile, gold buying by government banks internationally has roared to the highest in a half century, particularly in Russia, but also Turkey and Kazakhstan. Russia’s gold purchases came from domestic production, circumventing the U.S. dollar entirely. As America employs trade sanctions and seizures of assets, the U.S. dollar is getting replaced by gold — also the ruble in some places.

But the gold buying couldn’t be the only factor, otherwise why would silver also be rising ensemble? By The Dines Wolfpack Theory (DIWPAT) of course. So silver has gone up simply because gold has. The world’s government banks bought 500 tonnes of gold last year — paid for by dumping U.S. Treasuries. China bought 16 tonnes, after two years of a flat position; Hungary and Poland were new buyers; Russia last year bought 274.3 tonnes of gold, its biggest net purchase on record, and has leaped ahead of China to build the world’s fourth-largest gold reserves — hopefully not a sign of war. Net sellers of gold included Australia and Germany.

Miner news has been dominated by the attempted hostile takeover of Newmont by Barrick. We expect many more gold mergers: As with pot stocks, many smaller miners would be more efficient when merged. Which leaves other precious metals like platinum out shivering in the cold. According to DIWPAT, it should rise.

Finally, we want to share an update on the so-called “Big Mac index,” based on the theory of purchasing-power parity (PPP). It dictates that international currencies should adapt their relative prices so that identical goods, in this case a Big Mac hamburger, should cost the same everywhere. A Big Mac in Russia costing $1.65 after exchanging rubles for U.S. dollars is way off as compared with $5.58 in America. World currencies are currently at their cheapest in 30 years, suggesting a lower dollar, yet the greenback’s chart has been flat. Theoretically the ruble is thus underpriced and should rise against the U.S. dollar — geopolitical concerns muddy the waters.

As we have maintained, only gold or silver could provide stability and parity among all currencies. When the gold standard was the only standard for all paper currencies it accomplished that goal. Also silver.

James Dines is legendary for having made correct forecasts that were in complete contradiction to the rest of the financial community. He is the author of five highly regarded books, including "Goldbug!," in addition to his popular newsletter, The Dines Letter, and videotaped educational series. Dines' highly successful investment strategies have been praised by Barron's, Financial Times, Forbes, Moneyline, and The New York Times, among others.

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