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Gold Wrecking Ball & OTCD ValuationsStewart Thomson 1. "Talk is cheap." unknown author. I would argue that talk is expensive and costly. Costly to you. As I write this piece at 4am Tuesday morning, gold is in upside astroblast mode. The bears talked while I bought price weakness into gold 1045. Those who listened to the "stand aside" bears, paid a heavy cost. It will get heavier. The deflationists, the micro trend traders, the economists, and just the plain scared, they all talked and talked and talked into gold 1045. They told you to sell gold, to short it, to run home to mommy. The massive bail into 1045 is now revealed as the truth that is price, nothing more than the market action of bustouts and market losers. 2. Gold is now $70 higher, from the $1045 line in the sand. You can't ring your cash register this morning if you bought no weakness. The truth, the truth of making money in the market, is unchanged for 200 years in the gold market, and today as the blood gushes out of the dollar bugs, we once again learn that if you take the easy roadyou learn that road leads to one destination. The Gold Cliff. 3. At the 1045 level of the gold cliff, lie the dead gold price chasers and gold bailers. If gold holds this pricing into the stock market open this morning, many of you will be ringing your gold stock cash registers heavily. 4. Don't talk about what can go wrong with the price of gold. Just respond to the gold price with market action. Now today you'll get to hear about all the reasons why gold "might go higher for now", from the same people who told you to "stand aside" at 1045. 5. The price chasers have completely blown up on their gold shorts and as of this morning will be telling themselves a thousand reasons why it's time to go long. 6. The market just gave those of us who bought gold and stock stock into weakness into 1045, we just got $70 of profit, which is an amount equal to the entire gold price just a few decades ago. Some of that has to be taken off the table into this power strength. Here and now. 7. It's important not to read too much into any single day's action in the gold market. The intermediate downtrend line from 1225 was taken out to the upside, and there's some "wedging action" displayed by the supply and demand converging trendlines, and both items are gold positives. Here's a look at that intraday upside breakout: 3 Month Gold Bullion Chart 8. Still, no minor highs have taken out. Here's a look at the horizontal resistance at 1125 denoted by the red line. Gold Chart 1125 Horizontal Resistance 9. Notice how the bears jumped on gold as it corrected from 1225, calling it a primary move down. Until price in any market has taken out the previous intermediate low, it is very pre-mature to make statements that the primary price direction has changed. Minor trends are 1 to 3 weeks in time on average, intermediate trends are usually a several months to 6months or so, but there's no exact definition. Gold's intermediate trend from 1225 has been down, but jumping to pre-mature conclusions about the primary trend is the hallmark signature of an amateur investor. 10. Failed trader Nouriel "Market Wieny" Roubini claims gold is a barbaric relic. In terms of his ability to respond to price action in the market, Mr. Roubini reminds me of.The Blob. He is the barbaric relic. Not gold bullion. Asian central banks on the gold buy on price weakness combined with the Western central banks' unified move to devalue their paperbug currencies so the banksters can collect the hundreds of trillions they won, but have yet to collect, on a Quadrillion dollars in OTC derivatives bets that have been marked to model to make them disappearthose are the twin fundamental drivers of the gold bull market. The 1.4 Qudrillion in OTCD's have not disappeared. They are all still there. The 600 trillion number is nonsense. All that has happened is that a Quadrillion dollars in OTCD contracts have been hidden from your view. A 3rd prime driver, the destruction of price in the major govt bond markets, is near at hand, if not already underway. 11. The Euro downtrend line over the past month remains intact, and the fundsters retain a massive short position in this market. The banksters hold the other side of the trade, and the fundsters this morning will be sweating bullets as they wonder if the Euro will follow gold. Massive stoplosses on their shorts would sit just above that downtrend line, and even more around the 1.3875 level, which is above horizontal resistance built with the highs of the past week or so of trading. Here's a look at the fundsters in the euro sweatbox this morning: Euro Currency Chart 12. Looking at a 3 month chart, you can see the Euro remains in a downtrend but is drastically oversold basis the flagship 12,26,9 series MACD indicator. Euro Currency 3 Month Chart 13. Why should you care if the Euro rises or not as a gold investor? Gold is the world's thermometer and the "punisher". When commodities, "anti-dollar" currencies, and the stock market all rise against the US dollar along with gold, the global economy patient can be termed ill, but it's a flu, not ebola. When gold transitions from thermometer to wrecking ball, a "death spiral" starts to develop. 14. Just as the banksters can't collect on their OTCD trillions if they are marked to market, because the losers go bankrupt, you won't be collecting on very much if the gold wrecking ball sends everything else into the tank. If the gold wrecking ball turns on assets like the stock market and the euro, a situation of institutional panic is the next step. If you think you'll sit there with your gold while the Gman watches society tank into the ground, you may get a bit of a surprise. 15. Should a deflationary situation develop, what that means is the banksters can't collect on 1.5 quadrillion in OTC derivatives wins. The bankruptcy of most corporate entities would follow, and the banksters would close the banks and the world of Mad Max would quickly ensue. A giant price reflation is therefore the most likely scenario, because it is the scenario that makes the most money for the banksters. I don't think the fundsters have seriously thought through what happens to the world if the dollar soars against the Euro to the point the euro is destroyed. 16. The most accurate analogy of the OTC derivatives situation I can give you is this picture: Imagine you bet $100,000 in an illiquid market. You used 20 to 1 leverage. Price melted to the point you owe $1,000,000 that you don't have. The other side of the trade wants price to rise, not to the point that you make a profit, but to the point that you can pay them, rather than declaring bankruptcy. The banksters marked the OTCD's to model so the losing side of the trade wouldn't declare bankruptcy. 17. Should the "death spiral" be the scenario that actually occurs, you want to own gold for your life, for survival, for barter, not for profit. 18. The key item to look for in the death spiral is the stock market and the anti-dollar currencies. Should a situation occur where the US dollar rises against the Euro, the Aussie and the Canadian dollar and against the stock market, but falls hard against gold, you have a death spiral in place and your only investment choice is going to be wondering which street gang breaks into your house and blows you away, then steals your gold and food. Your handgun on the night table won't help too much, when 100 maniacs show up with sub-machines guns. I don't want my family in that situation, and I don't think you do either. 19. My own view is there will be a "mini death spiral", one that sees the global bond markets decline against gold, the US dollar declines against gold, the stock market drifts lower against gold, but the stock market rises against the US dollar. 20. Luckily, some of the daily stock market sentiment indicators at the recent Dow lows showed the public was just as bearish at dow 9700 as they were at Dow 6500! Here's a look at the near term action on the Dow over the past 3 months. Dow 3 Month Chart. Again, we don't want to celebrate too early, there are still many technical negatives. Here's a second look at the chart, with the horizontal resistance hurdle highlighted in red. Dow Chart Horizontal Resistance Highlighted 21. The Dow actually broke its downtrend line 4 trading days ago, so it may be leading gold. That is a positive sign, as anyone sane wants to see gold higher based on a general reflation of price across all asset classes, a general collection of money by the banksters from their OTCD wins. The time to "get" the banksters is during good times, not bad times. Should those attacking the banksters now, and the gold bears and deflationists are included in that camp, should they be successful, the banksters would close down the financial system in retaliation and retreat to bunkers filled with gold and food, while everyone else plays Mad Max. 22. If you think back to the 1930s, if you remember how President Roosevelt ran his gold repo, the lesson to take from that is not that another confiscation will occur. The "confiscation" has taken a different form. It's a lot easier now to take people's gold. First, they don't have much to take. Second, after 20 years of the banksters dangling their propaganda puppets that gold is a "relic of the past" and we've "evolved past gold", those holding gold are in a weaker position mentally than in the 1930s. A grand blast of TV commercials ordering the public to the pawn shops has gotten rid of a good chunk of their gold. So a gold revaluation now is simply a market revaluation. The key point, however, to remember from the 1930s is that how serious the government is about fighting deflation. The Gman will resort to vicious tactics and can be termed maniacally obsessed with securing a general reflation of prices, while pretending they want to fight inflation. 23. The public investor, not surprisingly, appears to be the "chosen one", as in chosen to hold the cash bag. After all, somebody has to hold the losing side of any trade. The Gman knows that if deflation takes hold, the banksters can't collect their winnings and may take further action such as temporary shutdowns of the financial system, to send a powerful message to the Gman to turn on the printing presses. The Gman himself owes so many dollars to his creditors that he's onside with the banksters. Once the financial system is closed, the nation is days away from serious social unrest, with the Gman the prime target of the people's wrath, so deflation is the last thing on the planet the Gman or the banksters want to see. The price-chasing public has been sold down the river by the Gman, who he ironically thought was his friend in the market. "All I know is that I bought a bag of stocks in 1998 and it's worth less now than I paid then." Joe Blow Public Investor, 12 years later, feb 2010, talking with his golf ball advisors. 24. He is of course perfectly correct; that is all he knows. As the banksters devalue the public's money, the economy isn't picking up. The public is starting to come under pressure to meet expenses. Their attempts to save money are really a diversion of monies into bill paying, monies that were previously used to price-chase investments. The public isn't holding gold, and they aren't holding the DOW. They are holding a bunch of C and D grade stocks and funds. While the Dow perhaps prepares to make a new high, most of the public's stock market trash is more likely to stagnate, exasperating them further into more selling. I believe the banksters' plan is to fade the public out of the market, not blow them out. As the standard of living drops at an accelerating velocity, the public will just keep shedding assets for cash, ironically as cash is further devalued against gold. In an even greater irony, as I finish this last sentence of my posting, one subscriber just emailed me that 3 of his friends have checked into the hospital due to massive stress levels caused by the economic meltdown! This is the big show, and it is all about the gold punisher, the gold wrecking ball going to work on the world's price chasers. I bought not just gold and silver into the lows of 1045, but Aussie Dollars, Euros, the Chinese Stock Market, food items including Corn and Wheat, and Oil items. Look at my postings on the gold sites. There was no hesitation, no standing aside. I don't play tiddly winks with $180 of gold weakness. I buy it and buy it in increasing size without let-up. The time is now, for your own sake, to step up your purchase of these gold-based items on price weakness, against your public and fundster opponents! ### Feb 16, 2010
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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am. The newsletter is attractively priced and the format is a unique numbered point form; giving clarity to each point and saving valuable reading time. Risks, Disclaimers,
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