The following is an excerpt from Richard Russell’s Dow Theory Letters

11-Jan (Dow Theory Letters via FinancialSense) — For a decade I have been urging my subscribers to move into gold — either physical bullion or other wise. Now I am at it again: PLEASE MOVE INTO GOLD. Those who think gold has lapsed into a bear market simply do not know what they are talking about. Gold has simply been correcting in an on-going bull market.

This is a time when almost every central bank in the world is grinding out paper currency, grinding it out by the car-load. This is a time when people are searching for safety. People are frightened and confused. Where is the land of safety?

There is only one safe asset on the planet: that safe asset is gold. Uninformed people believe gold is just a commodity. Wrong, gold is absolute money. Gold alone is the world’s only completely safe currency. Gold has no counter-party against it, and no central bank has ever found a way to create gold.

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12-Jan (USAGOLD) — Gold has pushed to more 4-week highs, bringing the 1662.60 resistance level mentioned yesterday within striking distance. Risk appetite has improved further, following generally positive results at today’s Spanish and Italian debt auctions. There is a glimmer of optimism that the ECB’s LRTO operation may finally be showing some results; banks are using cheap ECB money to buy European sovereign debt, rather than simply parking it back with the ECB.

Both the BoE and the ECB held steady on rates. The BoE also held pat on their asset purchase target, and said that QE2 would wind down next month. It remains to be seen if QE3 may be in the offing. ECB chief Mario Draghi warned of substantial downside risks to Europe’s economic outlook in his press conference.

The euro has rebounded from its recent lows, putting downward pressure on the dollar. This is helping the yellow metal. A weaker greenback is also generally supportive to stocks, but gains in shares have been muted by weak US retail sales in Dec and a marked rebound in initial jobless claims last week, to just under 400k.

• US retail sales +0.1% in Dec, below market expectations of 0.3%; -0.2% ex-autos.
• US initial jobless claims surged 24k back to 399k for the week ended 07-Jan, above expectations of 375k, vs upward revised 375k in the previous week.
• ECB left refi rate unchanged at 1.0%, in-line with expectations.
• BoE held the repo rate steady at 0.5% and asset purchase target unchanged at £75 bln, said QE2 will be completed in early-Feb.
• France CPI (EU harmonized) edges up to 0.4% m/m in Dec; steady at 2.7% y/y.
• German CPI (EU harmonized) edges down to 0.7% m/m in Dec; 2.3% y/y, vs 2.4% y/y in Nov.
• Italy industrial production (sa) 0.3% m/m in Nov, vs -0.9% m/m in Oct; -4.1% y/y.
• UK industrial production -0.6% m/m in Nov, below market expectations of unch, vs negative revised -1.0% in Oct.
• Eurozone industrial production (sa) -0.1% m/m in Nov, on expectations of -0.2%, vs negative revised -0.3% in Oct; -0.3% y/y.

12-Jan (CNBC) — Successful Spanish and Italian auctions of shorter-term debt offered a welcome breather for crisis-weary European bond markets on Thursday, but analysts warned that the sale of 10-year bonds will provide a more accurate indication of market sentiment.

Spain easily raised double its target from the auction of bonds maturing in April and October 2016 and a new 3-year bond.

Meanwhile yields for Italian 12-month debt more than halved at its auction to 2.73 percent from 5.95 in December Stocks rallied following the auction results and the euro reached its highest level of the day against the dollar.

Analysts cheered the outcome of both auctions, but warned that it also raises questions about what will happen with longer-dated maturities.

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PG VIew: Looks like the Spanish and Italian auctions dislodged some of that cheap ECB money, but EUR doesn’t seem all that enthused…

10-Jan (ZeroHedge) — We have often seen requests to show the price of gold going back as long as possible. Tonight we can oblige, with a gold price chart, indexed in 2010 British Pounds, going all the way back to 1265. To the surprise of many, the early 1980s gold price surge is not the only time in history when gold exploded as America’s game with inflation was almost lost. It appears that based on the surge in gold back in the late 15th century, there was actually quite a serious need for Columbus to go forth and find a source of gold, because last we checked Ferdinand and Isabella did not have Bernanke’s money printers back then. And yes, as Goldman says, there were no ETFs back in the 16th century to draw demand away from the real deal and into make believe exposure.

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PG View: The two charts presented in this piece provide some pretty important perspective to the recent 11-year rally in gold. As we’ve pointed out many times in the past, the yellow metal is still well below historic highs as measured in real terms. In other words, there’s room to run…

11-Jan (Reuters via MineWeb) — Gold rallied for a second day on Wednesday, hitting its highest in a month after a stronger euro helped boost the price above a key technical level and evidence of strong demand from major consuming nations further supported the market.

Gold has risen by 1.5 percent so far this week, in line with a modest pick-up in the euro, which is battling against fresh concerns about the ability of several euro zone nations to fund themselves given sovereign debt yields remain high and there is no immediate solution in sight to the crisis.

The gold price vaulted above the 200-day moving average around $1,635 an ounce on Tuesday, which prior to December’s sell-off had marked an important level of support, but since then has acted as stiff overhead resistance.

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11-Jan (Reuters) — The worst is yet to come in the euro zone’s debt crisis but the currency union will survive 2012 intact, according to a Reuters poll of economists who say France will probably lose its top-notch credit rating.

While just nine out of the poll’s 64 economists said the bloc had turned the corner on a sovereign debt crisis, only 10 said the euro zone would not survive the year in its current form. The rest were reasonably confident it would.

A similarly firm majority of those surveyed in the last few days said France would lose its coveted ‘AAA’ rating in the next three months, while Belgium, Italy and Spain will suffer further cuts to their ratings.

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11-Jan (CNBC) — Already mired in controversy about whether it should play a greater role in solving the European financial crisis, the European Central Bank is facing criticism over what they’ve already done to help — buying Greek debt.

Negotiators involved in lowering Greece’s private-sector debt (known as Private Sector Involvement) believe the ECB should also accept a haircut on the Greek debt on their books.

Their argument is as follows: the ECB bought Greek debt at a discount, or below face value, and yet they expect to be repaid at full face value. Private-sector creditors are asking: why should the ECB get 100 cents on the euro when they paid less than that? And should the ECB be making a profit on Greek debt as the country struggles on the massive weight of its obligations?

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10-Jan (Reuters) — Wall Street banks lowered their outlook for U.S. economic growth due to concerns over the European debt crisis, oil prices, regulatory uncertainties and “continued disarray in Washington,” according to a financial industry survey released on Tuesday.

The survey, which included bankers from Morgan Stanley, Wells Fargo Securities and Citigroup, forecast that the U.S. economy will grow at a rate of 2.2 percent this year, down from a previous forecast of 3.1 percent.

Several bankers said that U.S. financial markets and the economy were “greatly exposed to the risk of contagion from a systemic event arising from Europe.”

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Ben S. Bernanke is signaling his willingness to double down on a three-year bet that’s failed to revive housing, showing the extent of the Federal Reserve chairman’s effort to wrest a recovery from the deepest recession.

Since the Fed started buying $1.25 trillion of mortgage bonds in January 2009, the value of U.S. housing has fallen 4.1 percent, and is down 32 percent from its 2006 peak, according to an S&P/Case-Shiller index. The central bank is poised to buy about $200 billion this year, or more than 20 percent of new loans, as it reinvests debt that’s being paid off. Some Fed officials have said they may support additional purchases that Barclays Capital estimates could total as much as $750 billion.

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11-Jan (MarketWatch) — Much like Greece, Hungary was one of those small, slightly peripheral countries that most people in the financial markets probably thought they could get through a career without ever worrying about very much.

With a population of slightly less than 10 million, and with a total gross domestic product of less than $200 billion — only half the market value of Apple Inc. — it hardly had much of a claim on the attention of investors.

But right now, Hungary is could be the epicenter of the latest next financial storm.

…Much of the debt that was built up in the last decade is, in reality, never going to be re-paid. The investors will have to take some losses, and the economy will have to suffer some austerity. A one-sided deal is not, in the medium term, going to be acceptable.

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11-Jan (USAGOLD) — Gold is firm after setting a new 4-week high of 1647.00 overseas. The next resistance levels I’m watching are 1662.60 (50% retracement of the decline from 1802.80 to 1522.40) and 1674.47 (38.2% retracement of the decline from 1920.50 to 1522.40). Those gains in Asia came on news of record Chinese gold imports from Hong Kong.

The yellow metal is battling a firmer dollar again today, as the euro plums its recent lows against both the dollar and yen. This despite strong demand at today’s 5-year Germany Bobl auction. While demand for German paper was pretty good and spreads have tightened, there is a concern that this will detract from demand at tomorrow’s all-important Italian and Spanish debt auctions. There also continues to be rumblings of a possible French downgrade. It apparently won’t be Fitch as they said pretty definitively yesterday that they have no plans to downgrade France this year, but S&P and Moody’s both have France on negative watch as well.

David Riley, the head of the sovereign debt unit at Fitch said today that the ECB should buy more bonds to combat the EU debt crisis. The ECB and particularly the Germans remain opposed to such measures. New Italian PM Monti ratcheted up the rhetoric today, warning of possible unrest in Italy and calling Germany “the ringleader of EU intolerance, and against the ECB.” Those are very strong words indeed.

Meanwhile, Chicago Fed dove Evans made it clear again today that he continues to favor “substantial” accommodations until unemployment dips under 7% or inflation rises above 3%. He acknowledged that the Fed has fallen short of fulfilling both its employment and inflation mandates and that will likely continue in 2012.

Today’s headlines reinforce the themes I outlined in my article The Homeric Choice: Scylla, Charybdis and Gold.

• US MBA mortgage market index +4.5%; purchases +8.1%, refis +3.3%.
• US Treasury $21 bln 10-year reopen at 18:00GMT, Fed’s Beige Book at 19:00GMT.
• German annual GDP growth slowed to 3.0% in 2011, in-line with expectations, vs 3.6% in 2010.
• UK Trade Balance (visible): Deficit wider than expected at -£8.6 bln in Nov, vs -£7.9 bln in Oct; non-EU25 moves to surplus of £5.0 bln.

11-Jan (Bloomberg) — China’s gold imports from Hong Kong surged to a record as consumers bought the metal before the Lunar New Year this month and investors sought to hedge against financial turmoil. Bullion rallied to a four-week high.

Mainland China bought 102,779 kilograms from Hong Kong in November, up from 86,299 kilograms in October, according to the Census and Statistics Department of the Hong Kong government. China doesn’t publish gold trade data.

Demand for gold is climbing in China as investors seek to protect their wealth against slumping property prices and equity markets amid an inflation rate above 4 percent. The nation overtook India in the third quarter as the largest gold jewelry market, according to the World Gold Council. The country is also the biggest producer. Bullion rose as much as 0.9 percent to $1,647.45 an ounce today, the highest since Dec. 13.

“China’s appetite for gold is very strong and growing,” said Tao Jinfeng, chief investment consultant at Haitong Futures Co.

…“There is always the possibility that some purchases were made by the central bank,” said Tao, rated the fourth-best China gold analyst in a Futures Daily and Securities Times poll.

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Barrons (Jan 9) — Such a fall has narrowed “the disconnect between gold’s price and its fundamental picture,” Goldman Sachs’ (GS) head of commodity research said Monday at a global strategy conference. Jeffrey Currie told analysts meeting in London that the recent drop in the yellow metal’s price after a lofty build-up presents a “significant value opportunity” for investors, according to a Dow Jones Newswires report.

Gold is not only cheaper to store when interest rates are low but is also an attractive alternative to traditional bank savings, he said. However, as broad markets slumped in late 2011, gold holdings were sold in order to generate cash.

“The world demanded dollars more than it demanded gold,” said Currie. “But what happens when that demand reverses?” he added.

With U.S. real interest rates and inflation expected to remain low in 2012, gold should be supported in the year ahead, Currie predicted.

“Our view on gold is determined by our view on the rates cycle,” he noted. “We will continue to be long on gold until we can see an absolute turn in the rate cycle, which we don’t see happening any time soon.”

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10-Jan (USAGOLD) — Now that we have officially entered the new year, we have two articles of interest to offer. The first is written by our own resident economist, Peter Grant: The Homeric Choice: Scylla, Charybdls and Gold. The second is a lengthier treatment of what might evolve in the new year by James Quinn, titled 2012 – The Year of Living Life Dangerously — an analysis which revisits the accurate portrayal of what’s to come in William Strauss and Neil Howe’s, The Fourth Turning. As we turn the corner on a new year, it might be good to recalibrate from a golden perspective.

Our continued best wishes.

10-Jan (Bloomberg) — Hungary sold its target amount of debt at an auction at the highest cost in 2 1/2 years as the country’s chief negotiator traveled to Washington to meet with the International Monetary Fund on a bailout.

The government sold 45 billion forint ($183 million) in three-month Treasury bills as the average yield rose to 7.98 percent, the highest for that maturity since August 2009. Tamas Fellegi, the minister leading foreign aid talks, started discussions with the IMF in Washington yesterday, state news service MTI reported, citing a statement from the country’s embassy there.

The forint fell to a record low against the euro last week after the IMF and the European Union broke off talks with Hungary after Prime Minister Viktor Orban refused to withdraw new central bank regulations the institutions objected to. Markets rebounded after Orban said he is ready to accept “any kind” of credit line that strengthens the country’s market financing.

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PG View: Yields above 7% generally signal trouble.

10-Jan (The Wall Street Journal) — Portugal’s central bank Tuesday sharply lowered its economic outlook for 2012, citing a worse-than-expected drop in internal demand, and warned the government may have to undertake more austerity to meet deficit targets this year.

In its winter report, the Bank of Portugal said it now expects the economy to contract 3.1% this year. Its fall forecast called for a 2.2% contraction.

The bank also revised its 2011 forecast, saying the economy likely shrank 1.6% last year, not quite as much as the 1.9% previously expected. The bank said the economy should recover in 2013, growing some 0.3%.

The bank expects internal demand to decline 6.5% this year, with public consumption decreasing more than expected. Earlier it had expected demand to fall 4.8%.

Portugal’s expanding public sector is seen as the biggest reason the country’s deficit has ballooned in recent years, forcing the country to seek a bailout last year.

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10-Jan (Bloomberg) — German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde will meet in Berlin tonight as pressure grows to complete a Greek debt swap needed to put a rescue plan in place.

The deal, hammered out by European Union leaders, Greek officials and the nation’s creditors on Oct. 26, called for bondholders to accept a 50 percent cut in the face value of their Greek debt, with a goal of reducing Greece’s borrowings to 120 percent of gross domestic product by 2020.

More than two months after the accord was announced, creditors and authorities still need to agree on the coupon and maturity of the new bonds to determine the total losses investors would suffer.

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PG View: Really? More than 2-months after (what was it?) the third(?) rescue of Greece, there’s still no real plan in place?

09-Jan (Bloomberg) — Billionaire investor George Soros said Europe’s sovereign-debt woes are “more serious” than the financial crisis of 2008 and that the world faces the prospect of a “vicious circle” of deflation.

“We have a more dangerous situation now than in 2008,” Soros, 81, said in response to a question at an event in the southern Indian city of Bangalore today. “The crisis in Europe is more serious than the crash of 2008.”

Leaders in the euro region have struggled to solve the debt crisis that is now in its third year and which has clouded the outlook for the global economy. The European Central Bank has provided unprecedented cash injections to try to avert a credit crunch, while Greece, Ireland and Portugal have already been forced into bailouts.

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