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Gold Juniors Tactics: The Golden River!

Stewart Thomson
Nov 2, 2010

1. The “Gold Gauntlet”. Over the past few months I have become somewhat vocal in asking you, the gold community, to choose sides in the Gold stocks versus Gold bullion battle.

2. The battle for ultimate upside reward for your accounts.

3. Yesterday, I mentioned my views on the slingshot effect that continued modest increases in the gold price from here, could have on Gold stock price appreciation.

4. Have you noticed that star fund manager Eric Sprott has stated his view that gold stocks are trading, relatively, at valuations where they were when Gold bullion was approx. just $300 an ounce?

5. Unlike Eric, most are unfortunately focused on bullion, because it’s been in the news and most bought gold juniors in 2006 that are still underwater. This is today, not 2006, not 2008, and not 1929.

6. I’m not selling any core bullion, and I added to my core bullion into the lows of $1156. I urged you to do the same, documented in writing in my newsletter and across a myriad of gold websites, with an average delivery price of $1180 for myself. I believe new monies placement is best skewed towards increasing your Gold stocks to bullion assets ratio, to provide the best possible upside reward and downside risk management for you.

7. A week ago, I declared the correction over, for many Gold items, while most were just becoming aware that we were even in a correction. Here’s a look at the BMO’s ZJG.tsx Gold Juniors ETF chart. BMO Juniors ETF Chart.

8. Note that price blasted to a new high since I made that call. More importantly, note that your accounts holding the BMO juniors, and mine, blasted to a new high! All I tell you to do, is all I am doing myself, with real money, all the time.

9. Look very closely at that BMO Juniors chart. Price is either going to continue sideways, go a fair bit higher, or drop a fair bit lower. You need the tactics in place now, to manage all 3 of these possible outcomes professionally. Guessing which one of the 3 scenarios plays out, is not one of the tactics I would suggest you employ to achieve that professionalism.

10. What I am drawing to your attention is that the red supply line and blue demand line are not to be viewed as launch points. Just because price rises above those lines does not mean a new upside or downside move of intermediate or even minor size is underway. This point is subtle yet key; price has a 99% chance of moving either substantially above or below the current price range, but that chart should not be used to predict either outcome, but instead as a tool to respond to what occurs. Use “hindsight” to respond to price action with pre-set profit-booking orders on the upside, and pre-set buy orders on the downside. I’ve drawn the upside with gold-coloured arrows, and the downside with blue coloured arrows.

11. If we move into the upper price zone above the red supply line, which corresponds to a move above $1387 on the bullion chart, it represents the new reality, the new here and now. Yesterday, I talked about how a Dow level of 6500 would have been ridiculed in 1980 as “impossibly high”, yet that very “high” level was bailed on by hundreds of millions of investors, in what I termed maniacal liquidity flows, in March 2009.

12. If gold moves above $1387 and above $1400, it will be a new reality, and $1387 could be seen as low pricing, and $1320 seen as ridiculously low, just as you now view most of the previous low points in the bull market.

13. Don’t adjust your mindset later. Do it now. Get out of the (crazed) focus on the current price levels, in all markets. Flow into the mindset of responding to whether price is rising or falling, and respond with a flow of action, a flow of your pre-set risk capital. Flow buy orders into price weakness. Flow sell orders into price strength.

14. I’ll wager ten to one odds that if your price charts had no numbers on the sides, no gridlines, and you could only place blue buy markers on the chart as the gold river winds south, and gold sell markers as it meanders north, 99% of you would have little trouble laying those orders in professionally.

15. Why? Because you become an artist painting the Golden River’s flow, as it happens, rather than a maniac trying to dig its path.

16. Leave money and enter art. Paint the Gold River’s movements. Don’t order it around. The Gold River leads. You follow. Those who try to order the Gold River to flow to their account performance demands, will find themselves...

17. Financially drowned.

18. Think about the emotional state of those desperately trying daily to predict the next direction of the Golden River’s flow. Then think about the emotional state of the Gold Artist responding to its every move. The escapee from the insane asylum versus Michaelangelo. You decide who serves you better in the Gold market, who you want to be, in the Gold market.

19. I determine risk capital allocation with a paintbrush, not a calculator. The paint brush comes first, the calculator second. Heres’ a look at one such painting of risk capital allocation for the GDXJ, the Gold Juniors ETF.
Golden Hourglass Painting. In this case, the gold bars represent allocations of risk capital at price levels. The red bars represent selling of those positions. The result is an hourglass painting you can place on a chart. As the Gold River flows into your buy points, your hourglass picture is painted. The “sand” may or may not flow to all your buy points before you turn it over, before price rises, and begins to go into your sell points. Here’s a look at the calculator now, showing the buys being generated between 37 and 32 on the GDXJ as your risk capital sand is flowed into those orders and filled. Click here now:
GDXJ Risk Capital Allocation. $37-32 Price Range. That covers both the buy orders and sell orders for a Gold market trader allocating $100,000 of risk capital in the current price range of the correction.

20. Here’s a second look at the same allocation for a swing investor: GDXJ Swing Trader Capital Allocation. Notice the difference in the profit booking points. The swing trader has higher price targets. Notice the tab in the table that I highlighted, to calculate those targets while maintaining the hourglass “painting” formation. Here’s a visual of the buy and sell orders: GDXJ Swing Trader Hourglass "Painting".

21. What about the core position person, the buy gold and hold gold person? The tactics are the same to buy the gold item, be it stock or bullion. Use a pyramid formation of buy orders, but no sell orders. Here’s a screenshot of the $37 to $32 area for the buy and hold GDXJ person:
GDXJ Tactics For Buy & Hold Investors!

22. Here’s a look at the three tactical liquidity flows nets I have in play, here and now. Click here to view them on the GDXJ Daily Chart. If you believe higher bullion prices are going to have a slingshot/rubber band/exponential effect on Gold stock prices, then you want to really be careful about playing top caller in the current market. Focus on higher profit targets, whether you are a short term trader, a swing (medium term) player, or a buy and hold investor.

23. Price is going to move into another section of the GDXJ playing field, or stay right here. If we move higher, the Gold River path diggers will all race to the buy button on their trading screen, or on the phone or over lunch with their golf ball advisors, and begin a new price chase of the Golden River, while you enjoy the fruits of your current labours. The Gold River is not “getting away”, nor does it need anyone to dig a path for it based on their account performance demands. If we move into a higher price range, we may trade in that area, or surge through it. Respond professionally and don’t demand gold or gold stocks answer to your performance demands. All these rivers will do is financially drown you if you do that, as they have drowned billions of investors for hundreds of years.

24. Here’s a look at further allocations of juniors stocks arena risk capital, via the GDXJ, should price move higher.
$42-$37 Price Range Tactics For GDXJ.
This particular example relates to the allocation of capital for the trader, but notice the unfilled columns for the outer core positions and inner core positions. Here’s a look at the allocations for a buy and hold investor:
GDXJ $42-37 area Buy & Hold Risk Capital Allocation. The 3rd GDXJ risk capital allocation “net” that I have below the $32 area covers you if the Golden River flows south, instead of north. Grab a raft. Join the Gold Juniors raft ride on the Golden River! Thanks!


Nov 2, 2010
Stewart Thomson
Graceland Updates
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