Gold's Eleven Points of Clarity
1. A sea change is coming. But what is it? I spent 4 hours on the phone last night with my trader "The Brain" discussing this and other gold-related issues.
2. When you make 30% a year for 10 years in a row, trading only gold including 2008, when that is all you do, trade Gold, with miniscule drawdowns, little or zero leverage, and win 7 out of 10 trading days, with a dollar win to loss ratio that is in the stratosphere, with thousands of trades, while holding a core gold position from vastly lower prices, while being a gold powerbull for the long term, you are a person I will spend hours on the phone with, discussing in great detail how your thoughts and actions can benefit both my subscribers, and the general gold community. That is the brain. When I talk to the brain about the market, I feel like a huge "goldmind" is enveloping me.
3. At the other end of the gold spectrum, if you tell me your gold junior superstock is "the big one," I'm sorry, but I don't play the lotto with heavy money.
4. When you approach a junior gold situation, and both the brain and I believe now is the time to do just that, it is critical that you approach the juniors battlefield with reserve troops. If you look behind you and there are no troops (cash in your account), you become a gold clown on the battlefield if General Price defeats General Analysis. The juniors are too volatile in a good market to bet your life on a single price entry point, never mind what happens in a bad market.
5. The mental and emotional deterioration that occurs when the price drops below your single price entry point, a point where you placed money in size, is a concept that few investors take the time to analyze. Their analysis is focused on the market.
6. Prepare your mind first. Then your market analysis. Let's assume you've done that. Where now for the gold price? My resident mega gold dealer sub. "Sammy The Bull" told me yesterday, "The physical market is so tight Stewart, and it's only going to get tighter". Sammy The Bull is, literally, starting to wonder if it really matters at all what price you pay for gold now.
7. Sammy The Physical Gold SuperBull thinks it's highly likely the physical gold market gets 70% tighter over the next 12 months! The physical gold dealers have seen their dealing supplies chopped by the refiners. The current price sell-off has not rectified that situation.
8. The brain terms the current Gold market "Slop and Chop. Gold traders will be pulverized." This morning is another pulverization day. Gold is down to 1113, charging towards the 1110 lows. My view: Leave the trading of gold to professionals like the brain and think big. 1110 "is" 1100. I don't think most gold investors will survive if they don't make the conversion to bigger thinking.
9. Get used to thinking in $100 increments. First, it simplifies things. 11x $100 is the current price area of $1100 an ounce. So you have eleven buy points of clarity. Not a thousand price points of confusion. We're at one of those points of clarity. Right now.
10. I suggest you take action on that point of clarity today. Not next year, don't slosh around thoughts like "that looks interesting". Act with clarity and precision. 1100 is here. It's time to buy.
11. It's important to balance your personal "degree of gold action" with your long term view. You may believe gold is going to $3000, but if you sell out on a $300 price decline, you need to adjust your tactics. There's no point being correct if you don't make any money out of it, is there?
12. Because gold is the ultimate investment, the world's lowest risk investment, an investment that cannot be diluted in a material way as price declines, you want to own more as it does so. Not less. If you are an amateur investor, to succeed you must own more gold today than you did at $1200. Do you?
13. It gets harder and harder for the bears to crush price as it declines. It takes a superhuman amount of effort, and that effort gets more difficult at each $50 platform, and exponentially more difficult at each $100 gold price platform. Gold is a "thing". Crushing it to zero is a difficult task, one that has failed all of mankind for 5000 years. And there is no question that many, led by the Gman, have given it their best effort. All have failed to crush gold. And all will continue to fail, perhaps for eternity.
14. The compression of the gold price is made even more difficult today by the reality that institutions now have a fundamental fear of the US dollar. A fear that is not subsiding, but growing, regardless of any "rally". Here's some background on why this is true:
15. When the Bear Stearns/Lehman crisis broke, institutions surged into the US dollar. That is not the situation today. Since that crisis occurred, Chairman Ben Bernanke and heads of numerous other major central banks have categorically stated that financial Armageddon almost occurred. A total shutdown of the global financial system.
16. JP Morgan IS the financial system. If they closed, the whole world turns off like a light switch. When you trace back the bulk of the OTC derivatives, the ultimate backstopper is JP Morgan. All commerce basically shuts if JP Morgan goes down.
17. The institutions that bought the US Dollar maniacally when Lehman blew up did not understand the gravity of the OTC derivatives situation.
18. They do now.
19. Another cataclysmic event, whether it is terrorism, a real estate meltdown, major bank failure, another Iceland, whatever it is, such an event would not be met with the same institutional actions that occurred with the Bear/Lehman crisis.
20. Yes, money would flow into the US dollar. But institutional traders would pour money into gold as well. And they would do it in size.
21. What I'm talking about here is a supermonster version of 1979. When the US dollar begin rising and the pinhead patrol began shorting gold instead of buying the dollar. What actually occurred was that the US dollar soared. While gold superspiked. Upside.
22. What is little understood in the gold community is what actual actions were taken by the various groups of players in gold in 1979. The public bought into the final part of the rise, that is common knowledge. But within the institutional and fund trading communities, the tactics employed were either long dollar short gold or outright short gold. When gold soared "impossibly" along with the US dollar, legions of traders were literally wiped out. While the public bought into the final top, the trading world was being wiped out, caught in a lock-limit up golden nightmare. The banksters, and a very few in the gold community (although many have hired "gold editors" to retell their stories in a more positive light) sold at the top. They made a killing while most gold investors, whether long or short, were wiped out.
23. In any market, most trades are, unfortunately, losing trades. Whether the market rises or falls, most of the trades closed out are indeed losers. Gold is currently very oversold.
24. I believe gold investors are making a mistake of epic proportions focusing on the possibility of a gold crash. If you think you blew it on the move from 905 to 1225 you will soon beg to have missed only that. Gold is pouring from weak hands to strong as we speak. Picture a huge gold urn pouring molten gold into the hands of the strong. The losers are trading faster and faster and have become obsessed with the idea that a US dollar rally means they must bail on gold now. The average gold traders can only sustain a $10-15 price move against them. They have set themselves up for guaranteed failure with such tactics. Create clarity in your gold actions. I am driving harder on the buy here and I will drive much much harder on all further weakness. Every 10 dollars down.
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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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