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Gold Stocks Gulag: View From The Inside

Stewart Thomson
Jun 7, 2011

1. The street fighter versus the boxer. In the ring, the boxer wins 99% of the fights. It can be different in the street, because there are no rules. There’s no point pretending the gold stocks market is anything but a street fight right now.

2. You need to grab whatever weapon you can, to keep yourself in the fight, or at least from getting killed. Gold is surging back towards $1550 this morning, only about $30 from an all-time high, yet GDX is barely off the lows hit when gold touched $1462! Stock picking in this situation is basically useless.

3. I know the vast effort put in by most of the gold community to pick the highest quality juniors that would outperform as gold surged from $300 an ounce to $1500. It all seems generally meaningless now, with a situation of gold stock candles in the bullion wind.

4. Here we are at $1500 plus for bullion, and rather than holding the flag of victory atop Mount “gold stocks” Everest, it looks more like the gold community is neck deep in gold stocks quicksand.

5. The icing on this “cake of horrors” is that rather than improving, the underperformance of gold stocks against gold bullion seems to be accelerating. The bottom line is that a number of large asset hedge funds are operating a vicious ratio trade in the gold market, going long bullion and short gold stocks. Rumours persist of large OTC derivatives bets on that same ratio trade, adding “weight” to the trade. The banks appear to be on the other side of the trade.

6. What can you do in such a situation? After the shocks of 2006, 2008, and now the ratio trade shock, many (if not most) gold stocks investors are almost in the fetal position. When a person is reduced to the fetal position, the normal “ra ra, we’re going to mars on these stocks eventually!” cheerleading is not going to help, and may actually cause strong liquidation and serious depression.

7. This gold stocks fight is not a ring fight. It is a street fight. You need to grab whatever “positives” you can find, to get yourself out of the fetal position and onto your knees. You don’t go from a fetal position to a “let’s dance, it’s a gold stocks party!” mindset in one move.

8. Remember life in China and Russia under communism? That’s your gold stocks life under “banksterism”. The misery of the average citizen under communism just went on and on and on. This is a long, long fight and those who made courageous “back up the truck, this is the big one” calls years ago now look like public protesters under communism. The gov’t executes the protester, or throws them in the gulag.

9. Those around you who didn’t want to face gold stocks reality have gone quiet, or appear now like mental patients babbling insanity. You’re in the gold stocks gulag. Get used to the pain. There is no “breakout” for you. There is no “rescue mission” coming. There is only pain. Eat it.

10. Let’s get you out of the fetal position and onto your gold stock knees. Click here now for a look at the gold seasonal chart. In terms of time, you are at the end of the first week in June. While in a crisis anything is possible, price does have a seasonal tendency to begin meandering sideways from June to August.

11. Now click here to view the overbought condition of the gold monthly chart. I’m not concerned about the overbought condition of these RSI or Williams oscillators. They tend to remain overbought or near overbought for most of a major bull market.

12. It is the shorter term oscillators that are more of a concern when they rise towards and into overbought levels. Click here now to view the gold weekly chart. Note the greater oscillation on the weekly chart than on the monthly chart, and note that the oscillators are indeed “up there”.

13. Click here to view a longer term gold weekly chart, covering the entire length of the bull market. Note the oscillators I have circled, and the substantial amount of oscillation that occurs.

14. Technically overbought situations can be resolved by price or time. Given where the gold price is seasonally, the odds favour the situation being resolved by time. What is commonly referred to as the “summer doldrums” is really a range trade that could work off the overbought condition with time rather than a severe decline in price.

15. There is a seasonal floor under the gold price. There are central bank buy programs that have only really just started. There is the approaching Indian wedding season. The mid-East geo-political situation looks like a stick of dynamite with ten fuses sticking out of it, with some of them lit. The bond market has a fuse sticking out of it. The unfunded liabilities debt bomb also has a fuse sticking out of it.

16. The public is lined up selling all the gold and silver tableware. They think the gold and silver price are at a major sell here. Look at the metals dealers. Do you see any line-ups to buy? No. There are line-ups to sell metals, not to buy them. The public is moving into dollars. Real estate is being sold for dollars. Stocks are being sold for dollars. If the bond market collapses, bonds will be sold for dollars. The dollar is in very weak hands.

17. The positive fundamentals for gold are arguably the most powerful of any bull market in anything, in all of history.

18. At the top of the gold bull arguments mountain sits the OTC derivatives nuclear bomb. What kind of gold price is required to make all these dollar debts payable in dollars? It won’t matter if that number is $500,000 an ounce, if you can’t get out of the fetal position and onto your knees.

19. In the fetal position, liquidation is always on your mind. You know I labelled the Oct highs for gold and stocks the “loss of sanity” point. Many made the error of chasing price. Don’t engage in error compounding. Compound wealth, not errors. Liquidating gold and gold stock for dollars from the fetal position will not save you from wealth loss, let alone build any.

20. In the bigger picture, the dollar is drastically losing value against gold. Most of you have far more than enough gold stocks. Focus on building a position in bullion. I’m doing the opposite. I’m starting to focus more and more on gold stocks.

21. I don’t really see the current situation as gold stocks falling against the dollar, although that is one correct view of reality. I see my dollars rising against gold stocks and I see myself booking profit on my dollars in GDX currency, and that is also a correct view of reality, albeit a different reality.

22. Click here now for a look at the GDX weekly chart, covering the life of the bull market. Some of the oscillators, like Williams and some Stochastics series, are oversold now. A “summer doldrums” event could put GDX into a very powerful position, technically. We could also turn up right now, as unlikely as that seems.

23. Notice the blue horizontal support line on the chart and the suggested move higher, but also note the position of the first blue arrow on the chart, well below the blue HSR line. Perhaps the hedge funds want to see GDX break the lows of around $52.50, and cause you to sell.

24. You are already in the gold stocks gulag. You’re already “mentally broken”, and many of the gold stocks community are in the fetal position with no fight left in you. A break of the lows, if it happens, is just another day inside the gulag. Your gold stocks have already been starved, beaten, shot, whipped, and humiliated. There’s nothing more that the gulag masters can do. There are no new reasons to liquidate. What about analysis? That’s nothing but cyanide to those in the gold stocks gulag. You don’t analyse your way out of a gulag. You endure your way out, one painful day at a time. Then another. You eat discomfort for breakfast. Then you eat it for lunch, if you get any. Forget dinner, there is none. Welcome to the world of…what it really takes to build wealth in gold stocks.


Jun 7, 2011
Stewart Thomson
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