Tags: Russell | Stocks | Buy | Gold

Richard Russell: Stocks Poised to Plunge, so Buy Gold

Monday, 02 Apr 2012 07:27 AM

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Investors should stock up on gold now, because stocks are due for a massive selloff after rising for decades in an era of borrowing and inflation in the U.S., says Richard Russell, author of The Dow Theory Letters.

Since World War II, the economy has grown and stock prices have risen without ever really correcting enough to allow for stable gains.

Sooner or later, that correction will occur, and gold will remain as the only asset that will hold up, as the Federal Reserve will not be able to use monetary policy tools to pump up the economy and markets like it does today.

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"As for gold, I have a long-term position in the yellow metal that I will probably never exit or sell," Russell writes in a blog on King World News.

"My thinking is that sooner or later we will be subject to a major correction (bear market) that will wipe out or correct 60 years of inflation and leveraging. When that happens, I want to own the only kind of money that the Fed can't destroy."

The Federal Reserve has managed to steer the economy away from an extended downturn and deflationary contraction by purchasing assets like Treasurys and mortgage-backed securities from banks, technically known as quantitative easing but dubbed by critics as printing money out of thin air.

While such policies steer the country away from recession, they do stoke longer-term inflationary pressures and weaken the dollar, and making gold even more valuable.

Those holding gold will be in a good position to buy stocks at cheap prices after the correction takes place.

"If you have gold at the bottom of the next bear market, you can exchange it for a collection of great common stocks or funds, and then sit back and relax," Russell says.

"If the U.S. comes back, you will be rich beyond your wildest dreams. But you have to have the guts to hang on to your gold. And you need patience — the patience of 10 men."

Officially, the Federal Reserve has said that economic conditions warranting low rates will persist through 2014, though some Federal Reserve officials have said the time of loose monetary policies, namely near-zero interest rates, should come to an end earlier than that.

"My estimate is that economic conditions are likely to warrant low rates until sometime in the middle of next year," Federal Reserve Bank of Richmond Jeffrey Lacker tells CNBC.

"If I had to pick a central tendency in the forecast, that's when I'd pick for when rates are likely to rise. That's not a promise, and neither is the committee's statement. It's a forecast of what we're likely to find appropriate in the future."

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