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Gold's Volatility is Your Free Leverage

Stewart Thomson
Dec 29, 2009

1. "Gold is a high risk investment." Dec 27, 2009 ­Martin Feldstein, former Chairman of Ronald Reagan's council of economic advisors and professor at Harvard.

2. Gold is not a high risk investment. Martin is dead wrong. Gold is the lowest risk investment in the world. He is correct that the gold price is volatile, although it can be argued that the price volatility is because of the successful efforts of most world governments and the banksters to convince everyone that gold IS a high risk investment and an irrelevant asset.

3. Gold's price volatility, I argue, is a direct result of is drastic undervalue. Not just underpricing, but actual undervaluing. Joe Blow investor and Joe fund manager think gold is an irrelevant asset, when it actually remains the cornerstone of the global financial system. That fact is the actual underlying cause of gold price volatility.

4. The banksters don't think gold is high risk or irrelevant, but they want academic types like Martin Feldstein to make everyone else think so. In a major crisis, when everyone already owns some gold, the gold price would not gyrate wildly. That's not the case in today's world. In a crisis, a storm into and out of gold creates huge price volatility.

5. The gold bears like to trumpet Marty Feldstein's resumé. He's recognized as one of the 10 most influential economists in the world. I say; Marty has been to Oxford, has an IQ in the stratosphere, is a big gun at Harvard, has been close to the President of the United States, and yet still this man does not have a proper understanding of what gold IS? That's unfortunate. For him.

6. I bought a bunch of gold data and emailed it to my resident systems engineer "Goldflower" (that's a real profession, systems engineering. The average student has 98% in grades to get in there). I mentioned the ATR, the average true range indicator.

7. While Marty Feldstein cries his eyes out that gold is "volatile" I celebrate that volatility, as do the banksters. By understanding gold's volatility, money can be made (a lot of it) by buying and selling gold in a way that sees that volatility as your friend. You may recall my last posting where I basically took on all the gold chartists in a streetfight at 1075. I didn't yell buy. I screamed it. What happened? Price soared $40 out of 1075. I won. I've already booked profit on a bunch of the positions bought there. Below is the daily chart for gold. Looks fine to me.

Gold Daily Chart

Short term stochastics and short term MACD series have already issued buy signals. While my competition stands there. With no gold. Smooth move guys. Here's the chart for the USD: All I see are sell signals.

USD Daily Chart

The fundsters busted out of their price-chased leveraged carry trade. Now their "stop and reverse" long USD trade is already burning up too.

8. What the gold bears don't want to understand is that during a selloff there are rallies. The more volatility there is, the more volatility there is, and the bigger the price swings. I don't guess at all those swings, I respond to them. Buying weakness, selling strength. As do the banksters. They do it with complicated algorithm trading software. The problem with an algo trade is you need to basically put $100 million on the line to make a hundred bucks. Yes, you then make that $100 bucks repeatedly thru the trading day, but: What if the "impossible" happens? What if gold gaps?

9. The price gap is the death bell for the day trader, the day flipper. When price gaps there is no trading. A price gap could occur at the opening bell, or it could occur during the day. Gold is a 24 market, but gaps are still possible. I have no interest in betting monster money to make micro money.

10. But the very volatility that Marty Feldstein talks about is my friend. Goldflower is working to structure my pgen to take advantage of various market conditions, various changes in mkt volatility. Since we only buy gold on weakness, changes in volatility can be managed, but even when we get it "wrong" is it really "wrong" if we are buying gold say, every $8 down, when we "should" be buying it every 7.94 down? We still make money! I doubt the business owner is looking for perfection. You are looking for profit maximization in something solid.

11. What Goldflower is doing is simply adding another pgen machine to the Graceland factory floor. He's honing the machinery. Since he's designed highly-complicated engineering systems in the past, let's assume this isn't exactly putting his brain in a goldknot (like Marty Feldstein's is). The difference between Goldflower (and most of you reading this) and Marty Feldstein is that Goldflower understands that because the odds of gold going to zero are so tiny, the price volatility is a blessing... if you are prepared to buy any and all weakness, which we are.

12. Goldflower is onto something very very big with his research into gold price volatility. His own trading account has surged forwards with low drawdowns since he adopted the pgen. It's too bad Marty Feldstein is wasting his great brain on gold bashing instead of making money out of it. Too bad for him. Guys like Marty actually help me make more money by boosting gold's volatility rates. Maybe I'll send him a thank-you note with a picture of a monkey holding a gold bar. I'm the monkey. It might be more than one bar I'm holding.

13. Remember, if gold trades ten times between $200 average true range over a year, that is potentially a lot more profit than if it trades just once between those prices. This refers to velocity, not just volatility. The frequency of volatility is as important as the volatility itself. The bear market of 1980 featured some spectacular opportunities to buy and sell gold. It wasn't just a straight down affair. If you threw in carrying a 30% short position traded in my pgen, you could have bought on the day of the 1980 gold top with the pgen and ended at the low at $250 with a net profit.

14. "Ask not what gold can do for you, but what you can do for gold." If you can think this way, vast riches (or at least the ability to sleep at night with your current gold positions) are near at hand.

15. I posted the latest COT report on my website last night. Once again we see that as price fell into 1075 it was the banksters on the buy, booking profit on about 13,000 short positions and adding about 3000 longs. The fundsters and much of the gold community, sadly, took the other side of the trade, throwing about 15,000 longs into the gold garbage into 1075 in failure, while adding 3000 thousand gold shorts right into the lows. Nice move, fundsters. For the smaller gold investors, it is demoralizing watching the larger investors throw their gold into the garbage. It seems impossible that they are that stupid.

16. It's more greed than stupidity. Long term capital's managers had leveraged the fund about 500 to 1. Nobody knows the real numbers. It seems they had a few billion in real capital carrying "around" a trillion dollars in notional positions. Top economists with doctorate degrees were on board that good ship, the Leveraged LoliPop." So smart, yet, so dumb.

17. Volatility is your friend. Leverage is not your friend until you have used up all your volatility friends. I don't believe anyone reading this has used up his/her volatility tools, so your use of leverage could be a tactical error. Seek volatility that exists. Don't create it with leverage. Like good cholesterol and bad cholesterol, that is the story of volatility versus leverage. The banksters seek while the fundsters try to create from thin air. Think about that. Seeking versus creating. Discovering versus reinventing the wheel. If you can achieve reward X with zero leverage, why try to create that same reward with huge leveraged risk?

18. The banksters love selling the fundsters leveraged algo trading systems, while they take the other side of the trade with no leverage. (partly because they have the ability to print unlimited monies to handle any margin call for themselves).

19. What is the real value of gold? Likely vastly higher than where it is priced now. The dollar that has lost almost all its value while gold has lost none. That is the scorecard, that is the fact. Gold wins, the dollar loses. And yet each year a new crew of paper money pundits step forward, claiming they alone have re-invented reality, that they alone are smarter than five thousand years of history, just as the long term capital managers believed they could outsmart risk, rather than manage it properly by reducing leverage. A leveraged world drowning in debt now exists. "Champagne taste and a beer bottle pocketbook," as my mother drilled into me.

20. Paper money and gold can work together as a team. Gold keeps that door open 365 days a year, and has for 5000 years. When the dollarbugs decide, however, they want a fight? That is an exercise in madness. There will be no victory for the dollar in a fight to the death against gold. Just as there has been no victory for all the other paper currencies that tried it. All were killed. Not knocked out. Killed and exterminated. Fighting gold is the ultimate market madness. It is complete and total insanity. Leveraging that fight against gold defies all spoken words.

21. Do not join in any fight against gold. You will be financially killed and exterminated by Queen gold. Trade it, yes, but don't fight gold. Gold will be here long after the continuous feed of gold bears fail in their fight, just as every single gold bear has failed for 5000 years.

22. Sadly, most of the world's investors are actually engaged in that very fight, a fight they must lose by definition, not by logic. By failing to team up with gold in a friendly way at low gold prices, the paper currencies have made it a done deal that they will find themselves blubbering on the floor at thousands of dollars an ounce, crying "please help us, we'll pay anything, just help us please!" The price for that help is going to very costly. I feel sorry for the paper currency bulls, clinging to their electronic photocopier heros. "Let's see, the Gman steals 50% of my income, he can't balance his books despite having the power of taxation, he still can't solve a problem without a war despite trying for 5000 years, he has 10 billion laws to enforce 10 common sense ones and still can't do that, and yet his photocopied playmoney, not gold, is my financial hero". What's wrong with that picture? Everything is wrong, everything.

23. It's not about economic gain. It's about freedom. Gold is about freedom and responsibility. The paper currency bugs will never understand that, and since they've decided to take the gold community on in a financial deathfight, that's fine with me. I love fighting. Let's see how willing these worms are to buy their photocopied trash all the way to zero while I do the same with gold bullion. I bet they cave in and bail in terror. The paper currency bugs are going out in financial bodybags, just as they have every other time for 5000 years without a single defeat for gold. Do not fight gold. You won't just lose. ... You will be obliterated. Although I don't think it will happen, I would love to see the banksters really stick it to the paper currency bugs. Instead of ending the US dollar bear at 40-60 on the index, they wipe it out and replace it with a global currency. Like the scumbag management of a company delists its common stock and rolls the business into a new company, wiping out the common shareholders of the original business, while issuing themselves a pile of stock and options.

24. The paper currency bugs think they are really smart betting on the exception. The rule is: All paper goes to Zero. I think the banksters will lock the dollar to gold before the dollar goes off the board. Would I bet money on that? No. The bond market is on fire and Morgan Stanley is pouring tanker trucks of gas on it. Here's the weekly chart of the Junk bond:

Weekly Junk Bond Chart

It is massively overbought. Morgan Stanley's record of calling major moves is unparalleled. MS is saying sell. Is the public listening? No. Not a lot of people know they are in fact the brokerage arm for JP Morgan. How will the bond market collapse affect gold? Are you prepared?


Dec 29, 2009
Stewart Thomson
Graceland Updates
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Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:

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