R. Russell’s market wisdom on gold, silver and mine shares:

“..You don’t have to be a genius in order to read the chart below. This is GLD, the Exchange Traded Fund which serves as a proxy for gold. The breakout came this month when GLD filled the 65 box. Since then, GLD has rallied to the 67 box (670 in gold), and this gives us an upside gold “count” to 820.

Of course, the next real test is for GLD to reach the 72 box — and then to surpass it. I believe that’s going to happen. How it will happen and when — ah, I wish I could tell you. But I can tell you this — the great gold bull market is intact and right on course.

The next chart is SLV, the Exchange Traded Fund and a proxy for silver. Yesterday SLV filled the 142 box, signaling a bullish breakout. The count for SLV is now 184, which would take silver over 18 dollars an ounce. The immediate upside target for SLV is the 152 box. I think that high will be surpassed this year, possibly early this year. But hey, what’s the hurry? It’s a bull market, and it will progress at its own pace and in its own time.

Next, we have GDX which is the Exchange Traded Fund for the gold mines. This is an intelligent and easy way to be invested in assorted gold mines. GDX includes a good assortment of the best mines plus a number of smaller speculative mines. We’re still waiting for an upside breakout in GDX, and this would entail GDX rising to 43. The mining shares at this time are lagging the metal, but as I’ve said so many times, the mines and the metals alternate in leadership.

However, it’s important to remember this — gold, the metal, is timeless money, it’s the obvious base of the precious metals universe. The mines are always speculations, they have the leverage, but they also may have the problems. My personal preference would be to own two-thirds metals to one-third mine shares. Others may differ, but subscribers know me — I’m conservative and I always have risk in mind. A gold coin in the hand represents pure intrinsic wealth in any nation at any time in history. A hundred shares of a gold mine is a speculation and the hope of a profit in the period ahead.

I occasionally mention the Commercials in relation to gold. I consider the gold Commercials to be basically the gold mines themselves and perhaps the gold banks, those few banks that make a market in gold. The gold mines often sell forward gold, thereby locking in the current price. In doing so, they are also short gold. Occasionally, for instance, now, the Commercials will assume a large short position in gold. If gold rises, the mines lose on their short positions, but they can then either wait for a correction, at which time they can cover. Or, if need be, they can cover their short positions by supplying the actual gold which they mine.

But once in a great while, the Commercials get caught. They have assumed a large short position, and the metal goes against them. They don’t get the decline they need — and instead the metal powers higher. It’s possible that this is one of those times. Yesterday’s 23 dollar surge in the face of the current large Commercial short position had me thinking that way. If, indeed, the Commercials are caught here, we should see a concerted surge to the upside with very little “give” on the downside. Remember, trading is thin in the after market, and this is the time when the Commercials will try to knock the price of gold down, as they seek to present a picture of weakness in gold.

I want to emphasize the part that China and India and probably various Arab states could now be playing in the gold picture. Unlike US citizens, the three just mentioned are well versed in the value and the power of gold. The Chinese, Indians and Arabs understand that gold is real money, that it represents wealth that cannot be destroyed by governments or central banks. Thus, I believe that our overseas friends will be playing an increasingly large part in the gold picture.

In both ancient and modern history, gold has always flowed towards the strongest nations. Financial and even military strength has always acted as a magnet for gold. Thus, it will be most important to watch the flow of gold towards nations in the years ahead. Interestingly, the nations mentioned are all actively encouraging their citizens to accumulate gold. This is particularly true, I believe, in the case of China.

By the way, over the last five years gold has outperformed the S&P. In case you missed it, this rundown below shows gold’s progress in various currencies. In dollars, gold is up 6 % so far this year (chart borrowed from John Mauldin’s recent article.)