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The Golden Pinball Wizard

Stewart Thomson
May 22, 2009

1. Remember the famous line? "There you go again" -Ronald Reagan to Jimmy Carter, 1980. Let's leap forward to May 21, 2009.

2. "There you go again" -Bank owners to Fundsters.

3. Sadly, the fundsters never learn. No amount of profit is enough. Even more sadly, for many many members of the gold community, the same is true. "50% profit? Not enough. 100%? No, I don't want that chump change. I'm a big man in this investment town. I demand 1000% and I'm not selling anything unless I get it!" The reality is if they get 1000% they won't sell then either. When will they sell? Answer: When it tanks. Then it will be, "sell everything 'at the market,' now!"). Gold will tank. It's just a matter of when. When it does, are you going to be a bailer or a buyer? This is a terrible situation, and one that has repeated itself for hundreds if not thousands of years.

4. Professional gold investors have a feeling of discomfort when they buy. The news is negative. Their friends are losing money in gold. The situation feels very uncomfortable. That's not the situation right now. Here is today's situation: The bankers are playing their favourite song again. It's called "Dance, price chaser, dance!". And all the gold zombies are lining up outside the gold dance hall again. Gold rises $10, they buy. Gold rises $50? They buy ten times more. Gold rises $100? Now it's maximum leverage time. This is a horror show that will only end in agony for the price chasers. Over the past 2 weeks, I think I've heard 10 million reasons why gold can't fall down. How about PREPARING for just one... that it can?

5. From $880 gold has rallied almost $80. A spectacular gain. There seems to be some confusion in the gold community and I want to correct that. A view that I shorted gold into 930. That's not accurate. I was a seller of gold from 910 to 950 in ten dollar increments booking profit on a small portion of my long trading positions. If gold rises to 960, 970, 980 and higher I will continue to sell in incrementally larger amounts. I am not short gold. I maintain and manage an inner core, an outer core, and a trading position. As gold has risen, I have booked incrementally more profit on my trading position bought incrementally into the decline into 860. At 960, I offload the outer core position bought at 860. For each outer core position I demand a $100 increase in the price of gold. What I bought at 870 is sold at 970.

6. One convenient way to book profit on a physical position is to short futures or buy a bear ETF against the physical position. This saves substantial costs and time. Do I do this? Yes. Am I "short" gold? NO.

7. If gold rises $100 higher from here without a single downtick, you should be a seller all the way. If gold rises $1000 higher without a downtick, be a seller all the way.

8. I'm fully aware of the head and shoulders pattern on gold. I'm the only person in the community to document the "head and shouldering action," a phenomenon noted by Edwards and Magee in their book. The greatest book on technical analysis ever written. What I term "head and shouldering" refers to the action of the chart where a "head" is actually made up of one or more head and shoulders patterns itself. In the current situation, that is the case, and both the left and right shoulders are also smaller head and shoulders patterns. A spectacular situation. This pattern is a work of art. The more perfect a major technical pattern is, the greater its importance. I believe the break will come to the upside. Do I know it will? Absolutely not.

9. A professional investor books profit into strength. Regardless of what some squiggly line says on a chart. I don't care if Michaelangelo himself sculpted the gold head and shoulders, if gold breaks out over the neckline at 1000, I'm a seller into that strength, not a price chaser. If you want to know the secret to making profits in gold, I'll give it to you in 3 simple words: Book your profits! I have hundreds of sell points to sell my gold into strength all the way to $6000 an ounce. And if it reaches $6000 I'll still be holding 1/3 of my total gold, my inner core position. And it will be bigger than it is now.

10. The road to gold $1200 won't be a straight line. And the difficulty in trading gold will only increase as gold goes higher. Sorry to break the bad news, but the bankers are five thousand steps ahead of you. Do you think this is their first experience with a head and shoulders pattern? If you go into a major bank trading room, you get a feeling of awe. Hundreds of traders lined up. Each managing a portion of the bank's money, a "book." Bottom Line: the bankers didn't just fall off the gold head and shoulders turnip truck. Look in the driver's window...

11. There's a banker at the wheel!

12. Professional investors do not care if they rebuy at a higher price than where they sold. This is one of the hardest realities for amateur investors to face. "I sold my gold at $960, and now it's $1200. I blew it!" Wrong. If you sell all your gold at $960, or a huge portion of it, yes, you are blowing it.

13. Markets have risen and fallen for thousands of years. I suspect this will be the case for a long time into the future. There is no missing out. There are no "missed profits." There is only: Buying weakness and selling strength.

14. Those telling you to buy gold now are doing you a great harm. And even more harm if gold actually does rise to 1200 or higher on the next upleg. Because you are getting a mindset that since price chasing worked one time, it will work all the time.

15. And that is exactly what the bankers want. They want a bunch of price-chasing addicts who believe they actually know what they are doing in the market. Do you have any clue how many millions of business owners actually believed the stock market could not fall down as it did in the 1990s?

16. Any 'new' is exciting. We all want what is new. The thought of gold falling to 700 and then rising to 900 is not exciting. The thought of gold rising from 1000 to 1200 is wildly exciting. It has the gold community in a near frenzy right now.

17. Do NOT cheer a rising gold price. It forecasts harm. Harm to you. Not the man on the moon. Use this strength to book consistent profits and take the actions you need to take to secure your gold, take delivery of a core position of your stock certificates, open custodial accounts. Schwab has some outstanding security measures in place. Those telling you 401ks are finished, probably have their gold in a paint can, or in an OTC derivatives-soaked internet trading account. Professional armed gangs will make short work of the home security gurus. New lows in the Dow will take care of the rest. And that won't be too far into the future. It will take about 60 seconds before an armed gang has you handing over all your gold. "I won't talk, I'll remain strong." Yeah, sure. After the first bullet goes into you, you'll be talking loud and clear. Don't keep more gold at home than you can afford to part with.

18. Most important of all: You haven't won a single bet until you have collected your winnings. Start collecting today. And keep in mind: The ability to collect your winnings depends solely on: The ability of the loser to pay you. Here's the daily chart of GDX, the gold stocks ETF. Take a good look at this. Notice the RSI over the 70 zone. Price is skyrocketing above the green Keltner supply line. Stochastics overbought. MACD rising strongly. These are all signals to: Book Profit. Not liquidate. Not "jump out to buy back cheaper later." Simple profit taking.

click image to enlarge
click image to enlarge

19. My subscribers are booking so many profits this week, the non-stop Kachingos sound like a Golden Pinball Machine. With Tommy the banker as the golden pinball wizard at the controls! Sadly, the fundsters and much of the gold community are the pinballs. Let's listen in to the fundsters in action this morning: "Tommy can you hear me?" Sorry Mr. Fundster, Tommy the Golden Pinball Wizard is deaf. He only knows to buy weakness and sell strength. He can't hear the "Dance, price chaser, dance!" music he's playing in the background for you.

20. What a PERFECT way to go into the weekend. Gold just hit 960. Triggering the outer core sell for the gold I bought at 860. Another week of Victory. If you don't buy weakness professionally in stages, you cannot sell this strength professionally. And that is...

21. The bottom line!


May 22, 2009
Stewart Thomson
Graceland Updates
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