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Gold Tactics In The Correction

Stewart Thomson
June 1, 2010

1. From time to time, I mention the possibility of major Mid-East war. Yesterday, a group of my subscribers, who consult regularly to Fortune 500 company directors, led by a retired fighter pilot, and who never talk war with me, sent me a shocking email. They believe the odds of a major Mid-East war are 90%, in the next 30-60 days. The blasting of the Turkish-flagged ship by Israel, regardless of the facts of the incident, appear to me as the equivalent of the killing of ArchDuke Ferdinand, the incident that triggered World War One.

2. I’ve maintained all along that just the ongoing geopolitical situation of the world, alone, warrants a $1000 an ounce gold price. I still do. Gold’s function as a real safe haven from real disaster, not just asset price declines in markets, justifies that long term pricing. Most Western analysts factor only $20-100 an ounce into the gold price, for various geopolitical events. I believe $1000 is the correct number. T-bonds are a safe haven from asset price declines, and from nothing else. Calling them a general safe haven is madness.

3. Subscriber GoldLion, arguably the greatest gold juniors stock trader in the world, noted to me yesterday that gold often puts in a low in July, and that fits with the “Gold War Room” group’s war scenario.

4. Meantime, Elmer Fudd Public investor works maniacally to sell all his gold at the pawn shop before the price goes to zero “any day now”, to sell his stock market carcass for cash since the banksters have told him that cash is king, and Elmer Fudd is taking particular pride in his ability to set a volume record as he laughs at the possibility of the Katla volcano going off, while laughing at the same time at the possibility of MidEast war. He knows the US dollar can’t fall down any more ever again, and the 98% loss of his paper against gold over generations of his family is just a “paper loss”. This time, he’s literally correct! He thinks he’ll get it all back because his govt heroes will “do something”. The banksters have told Elmer Fudd that the US bond bull market is “here to stay”, so he’s wisely loading up on “quality” investments like Junk Bonds. He’s locking in juicy 1-4% returns. Here in Canada, Elmer Fudd carefully polishes his rose coloured glasses each morning, smug with the knowledge that nothing can go wrong for America’s largest trading partner (it’s “different” here), since the Canadian government has wisely sold ALL its gold at the bottom of the gold bull mkt. Elmer looks all set to collect a big payoff from his long term master plan, or so he thinks.

5. The mindset in the gold community is a little fragile, right now, and the banksters are aware of this weakness. I don’t believe it would take more than a $100 fall in the gold price right now to trigger substantial throwing away of gold positions. Your best defence is always having enough cash so you can add positions at all points on the gold grid. That tactic goes hand in hand with taking delivery of your core positions, so you don’t stare at an account statement denominated in govt funny money, but instead you stare at an asset in your hand.

6. Gold has gone to a 2 week high this morning as the Euro carves out new lows. You should be ringing the cash register on US dollar and GOLD long positions this morning.

7. I’ve been drawing your attention to the critical importance of following monthly charts. They rule the dailies, not the other way round. Most investors don’t find monthly charts “sexy”, and hence ignore them. That happened to Dow shorters at Dow 6500, and it is happening now in reverse in some of the currency markets. If you look at the Australian dollar, you see last week’s super rally was “predicted” by the daily chart. But it’s already melting away. Here is the Australian Dollar Daily Chart.  The Australian Dollar Monthly Chart is "leaning" on the daily with negative signals, causing rallies abort suddenly.

8. If you live your market life according to the daily charts you are taking great risk with limited rewards. My “flagship” approach to the major markets is to run a 70% long to 30% short allocation of capital. The markets are arguably a battle that is 70% mental/emotional, and 30% financial, so it makes sense for a number of reasons. You need to sit down and decide “how much risk capital do I want to allocate to the stock market?” Let’s say that number is $500,000. 70%, or $350,000, would be devoted to the long side, and $150,000 (30% of 500k) is devoted to the short side.

9. I prefer it when the up to 30% shorting component is layered in as a bet against existing long positions, but it need not be so. If you “bet your wad” on the shortside, and you are wrong numerous times, you can lose all your capital. The nail in that shorting coffin when it goes against you in price, is that you own not an asset, but a BET.

10. On the long side, you own an asset even if you get the timing all wrong. That is vastly more likely to be a sure thing with commodities and currencies, than with stocks. Still, with an item like the euro, which is under substantial accumulation by the banksters into weakness here and now, there is no way on the planet that the average investor can mentally withstand the ongoing weakness dictated by the monthly chart. Few of you have been thru real market wars, where you buy an item for years while those all around you have a big laugh while they entertain the banksters by chasing price in whatever it is the banksters want to unload onto the wienerheads. To win a market war requires more than just willpower.

11. When you buy anything, you need to be prepared for many many years of battle, but no matter how much preparation you do, it can’t beat ringing the cash register! Carrying even a small counter position to your main bets can give you an unbelievable amount of additional mental strength and happiness. The destructive “all in on one side of the trade” mentality was what killed the Dow shorting team at Dow 6500 and is killing many of the brave euro buyers in the gold community who never believed the euro could fall as it has. They never had one long position in the Dow at 6500, not even a token position. And they have no euro short positions now.

12. Here’s a look at the vastly different method by which the banksters operate in the market. Here’s the banksters’ positions in the Euro, represented by the commercials position on this table:
The Euro Bankster Bookies In Action

13. Yes, they are holding over 200,000 euro bull bets, and are adding to that position in almost all price weakness, but they also hold 100,000 bear bets, bets that the euro falls further! They are ringing the cash register on that position regularly!

14. The banksters have additionally booked a fortune in otc derivative bets where the fundsters bet Greece would default. When Greece didn’t default, the fundsters had to pay up, and couldn’t. So the banksters got euro politicians to steal a trillion dollars from euro taxpayers and flow it thru to the banksters, a smaller but still profitable-for-the-banksters version of the Lehman Show. The euro trade has been a monster winner for the banksters, not the the fundsters. As usual, not all is as it appears.

15. You don’t have a trillion coming to you in bailout flow thru money, nor the power of fractional reserve banking. Don’t you take yourself beyond your own personal mental breaking point, because by definition, you will break if you do. That mental break is almost always followed by capitulation, the throwing away of one’s positions. The charts, the mine reports, the gurus and the fundamentals; it all becomes meaningless, and in a heartbeat, all that exists in your world is that big red sell button. That’s what the banksters live for; to see you in agony banging that button.

16. Seasonally, the June-July period is generally pretty good for the stk mkt, but not so good for gold. I would not like to see GCPs (gold community people) shorting the stk mkt and booking zero profit in gold, only to see a huge stk mkt rally and a gold sell-off. That would break many, if not most, GCPs.

17. At the same time, I recognize that there is a near-universal “it’s all over for the Dow” mentality out there. There is nothing wrong with shorting the Dow. Not at all. Provided you do it into strength and with Gambling Money. I did it from Dow 9000 to 11,500. We peaked just over 11,200. You can use the Dow DOG-nyse ETF to approach the Dow with a shorting mission, and I’ve outlined the tactics to do that on my website with the “HowNowMr.Dow” Part2 video report.

18. The Plan. There is no plan right now in the gold community. There are only thoughts of gold either astroblasting or crashing to nothing. June-July is the weak season for Gold. Are You Prepared? Gold has soared to $1250, and the GDX has almost made a new high, while the Dow is far below its highs.

19. The most frequent emails I’ve been getting are: “What happens to my gold stocks if the Dow tanks?” The question you should be asking yourself is, “What happens to my gold stocks if gold bullion falls $100-200 an ounce, while the Dow rallies in June/July?” The answer is likely that you blow up on your Dow put options that you booked zero profit on while waiting for the Dow to go to zero, and you eat blood on your gold items that you also booked zero profit on your trading positions, with no plan in place to grip you gold core positions tighter than ever.

20. The time is now to get prepared, to get serious. What happens if the Dow soars and gold drops $100 an ounce? Are your gold buys in place now? If not, why not?

21. If the Dow blows thru the 9700 area lows, are you going to book profit on your shorts, and some longs, or start screaming “I got it, this is the big one, buy me more put options, I’m going all in!”

22. IF there is a coming gold correction, it’s critical to remember your mindsets at previous lower levels. No professional sells their core positions because they anticipate a correction. It is the amateurs that secretly tell themselves, “I’m special, I know I can buy it back cheaper.” Wrong.

23. If gold starts to go south, out will come the bears. Where are they now? Use the period in time that is now, to make sure your capital is in place, and your orders are in place, to buy if gold does correct.

24. You’ve been mauled by bear talk during every single previous correction in price. It will be the same again. Accept it. Your mindset goes into fear on price weakness. There is no getting around that fact. We’re entering what is arguably the weakest time of the year for gold, yet a literal plethora of bull market rocket fuel tanks are sitting around the globe. Israel, Iran, Turkey, Pakistan, Sovereign debt, otcds, etc. The list is endless and each component, alone, is hugely powerful. Together they make the act of disposing of one’s core bullion an actual act of insanity. The above situation makes it very difficult to know what to do, particularly given the possibility that the stk mkt probably has a 50-50 probability of either hyperinflating or going into a death spiral. Despite the govt-created horror show, US corporations are doing extremely well, given they are operating in this firestorm!


June 1, 2010
Stewart Thomson
Graceland Updates
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