1. December gold has blasted higher to 1020. Attention all money makers (current and prospective), you know the drill: sell this strength but don't play top caller. Play "build my bank account" caller, and "build my number of ounces" caller. And absolutely critically, play "leave my core positions alone" caller.
2. It's very easy to issue a "sell everything and get back in cheaper" call. Gold analysts doing that forget two minor details: First, you are telling that to investors that may hold very large portfolios of many gold items. It's not a simple decision for investors to buy or sell entire portfolios based on the call of an analyst. Second, gold is the smallest major market. By creating fear in the market, a stampede to the exits occurs, crushing price.
3. We recently saw John Reade, famed UBS analyst, issue such a call. Here's an excerpt from the news release: "We recommend that nimble investors take profits on any long gold and silver positions, looking to re-enter after a correction," said Mr Reade. His price target is $950 over the next month, with fresh rallies in 2010".
4. The headline to the news release was: "Gold investors warned to liquidate after 'buying frenzy'"
5. I want to draw your attention to several items in the news release. First, the headline is a major attention grabber. Investors are being "warned" by a superstar analyst, a repeat winner of the banksters' LBMA gold prediction prize. The headline appears designed to create: Fear. Second, he's telling investors to take profit on any gold and silver positions. Not just some positions.
6. What seems to be a minor point is Mr. Reade's gold price target.
7. It's only 950! At the time, that was a $50-60 drop. Why would I sell all my gold positions because gold might fall 5 percent? The commissions for most players on a buy/sell are 1-2%. Then you have taxes on the gains. Why the great concern to help investors avoid losing maybe 2-3% net of fees and expenses?
8. I find it very interesting that major LBMA players are piling on massive shorts in gold and silver against fund and retail longs, and their repeat award winner coincidentally steps forward with his "sell it all, or your portfolio might decline 2 to 5% before rising to new highs early in 2010" call.
9. If I had to guess, what is happening is some sort of bankster trick to get the gold community to start selling their core positions, to start a stampede. As the world's smallest major market, it wouldn't take much to start a gold avalanche.
10.An avalanche more in volume than in price. The banksters are playing bigger this round, so they need more volume by the funds and retailers to cover their latest monster shorts at profit.
11. Most in the gold community came into gold in the 900-950 area. It doesn't make sense to me to blow out your core positions because gold might fall $50-$70.
12.This "sell it all" call may be designed to create a hand-off situation. Where the gold community members (GCMs) hand their gold (all of it preferably) to the banksters, and then gold blasts towards 1200 while the GCMs sit in the spectator seats, and watch the gold rocket launch upside in price.
13. As I write this morning, gold has blasted upside to another new high over Dec 1020, bringing in even more speculative buying.
14. There are likely huge numbers of buy stops between 1000 and 1050. Many have obviously been triggered already, as the latest COT report showed the funds and bankers both holding record size positions. These buy stops are the banksters' targets. Somebody has to be a seller to activate those buy stops. The sellers are the banksters.
15. Remember that all markets rise on loss taking, not profit taking, by the majority of the investors holding existing positions in that market.
16.In gold, we are watching failed short coffins being lowered into the ground for final burial, and a battalion of new long speculators racing to the gold rocket and throwing their grappling hooks, desperate to get on for the ride.
17. Gold really could race to 1200 without a correction. The question is: Can you handle that without chasing after it? If you didn't buy into gold 700, don't buy into gold 1050, 1100, 1200. The bankster game is to change the recent "I'm waiting for a correction" feeling to, "I'm missing out, it's getting away!"
18. Investors who sold out into gold $1000 last week, are this morning already getting that sensation, a sensation which could grow drastically from a mild heat to a price-chasing fever.
19. In the intermediate market cycle, if price is falling, the growth of fear logarithmically accelerates as price falls. If price is rising, the growth of greed logarithmically accelerates.
20. An absolutely critical point to keep in mind is that the average leveraged gold trader operating in the gold futures markets can only withstand about a $15 dollar loss before the liquidation button is pressed.
21.If you look at the recent COT reporting period of Sept 2 to Sep 8, you can see that the "buy frenzy" referred to by Mr. Reade is real, and began around a gold price of $945. The largest buying came at the highest prices. We can surmise that this week's new gold price highs have brought forth another surge in speculative buying by the funds and retail investors, with the banksters stepping forward to take the other side of the trade. Here's the action during the Sep 2 to Sep 8 reporting period in the gold market, via the GLD-N gold proxy (together with the COT report for the same time frame, in case any of you have not seen it):
22. What the funds and retail investors are assembling is a reverse pyramid formation of buy orders that are being filled, likely with many "at the market". A price fall to 950, or even just to 980, could be catastrophic to the funds. From the current 1020 levels, the latest long fund positions would be liquidated at 995-1005. A fall to 950 would literally obliterate the funds' long positions.
23. In summary, what the banksters are attempting to create is a liquidation in volume, not in price. Having said that, if a steeper price fall did occur, say from 950 to 900, that could turn the fundsters into cesspools of forced liquidation, and create a "superbonus" for the banksters who may then not simply be buying back their short positions at huge profits, but also be adding long positions. While the fundsters throw in their long gold towels, based on a violation of the up-trendlines initially, margin calls 2nd, and forced liquidation finally.
24. Should a new crew of fundsters begin adding a major short position into price weakness below 1000, the gold market would be absolutely primed for a possible near-vertical moonshot towards gold $1200, particularly should a dollar crisis event occur, like Jim Rogers is predicting. The current new longs being added this week in the COMEX market are very likely being done with paper profits margin from longs put on last week. If you buy 1 gold contract at 950, and it goes to 1020, you have a $7000 profit. The banksters will then let you use that $7000 to buy another contract or even two. Then may also offer you a loan to buy even more, if you are a fundster. The fundsters feel fantastic right now with thousands of such longs, but they are playing with fire. The fundsters believe they can get out quickly if gold starts to decline. The problem is this a game of musical chairs. And the bankers own the hall. There is no way in a billion years the bankers are going to be so willing to take the other side of the fundsters' trades on the buy side if they all hit the exit button at the same time. Let me ask you this: Who is going to buy the fundsters' positions when they hit the sell button in a margin call situation? Answer: The banksters will buy, but they will offer limited size bids to ensure price goes down. The very size of the gold market now, it's exponential growth in the past 3 weeks, means we have entered the new era of price volatility, and like an over-shaken bottle of coca cola, it's turning explosive!
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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.
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