Oct 17, 2009

1. There’s a Gold Price Poll on the left hand menu on the website, just below the “latest news”. Make sure you make your guess. I’ll be using those numbers to create the gold portion of the Pogen. (portfolio generator) Also, I believe it’s important to have an idea how others are thinking generally about the gold price. It’s anonymous voting, nobody knows who voted for what price.

2. Long update today. I go into the gold cover clause and problems around its implementation and the implications thereof… First some tactics: If I told the average business owner in 1998 to buy gold into weakness, well….I did. But if I had thumped the table and had them allocate the kind of assets they put in the stock market, I would have had people literally screaming at me, as the stock market soared and gold sat there. IF they sold all their stocks (instead of borrowing money to buy more), their emotional thresholds would have soon been shredded. The media was hyping the market, their neighbour was in the market, even their dog was in. There is no way, from a practical standpoint, that the average investor outside the gold community could resist that kind of greed and stay on the sidelines. “Even my dog is making money while I stand here like a chump with this useless blob of gold metal, it’s probably going to zero, I gotta get in on this stock market!” And they did…

3. There’s a balance between between telling people where the price of an item is gong, and understanding how they RESPOND to the current action of price.

4. By selling people only what they want to hear, a writer maximizes immediate subscription sales. Like an investor maximizes the most possible reward in the shortest time by investing large immediately. But when it all goes wrong, as it MUST, depression, anger, failure follow. By pounding on the table “sell everything now!” when the bulk of the subscribers want to buy more, can lead to major problems, including broken marriages and massive losses.

5. When a writer has never handled money, they don’t really understand those issues. Some of you are retired and current brokers, so you know what I’m talking about.

6. The silver writer I mentioned who blew up his subscribers in juniors has an “extreme” personality. Many in the gold community do. One of you told me of a young fund manager who, around gold $900, became sure price would fall to $500 based on his “system”. You sold a lot of gold and left $500,000 on the table as it soared. As you spoke with the fund manager as price soared, he became more arrogant.

7. In the case of the penny stocks silver writer, if he hadn’t “rammed it” to his subs, if he’d maybe opened the door to some other possibilities (like being wrong), maybe purchased some “what if I’m wrong?” insurance, he’d probably still be in biz.

8. When an athlete doesn’t train, they failed that day. It happens. Sometimes the body is tired and the mind is tired. Likewise, if you are professionally selling gold into strength (which you can see the bankers did again in the latest COT report), you can reach a point where you think, “I sold too much, it’s not going to correct, I better just rebuy some now!”. You failed when you do that, but that doesn’t mean you TOTALLY failed in the gold bull market. It’s a one-day failure and sometimes I RECOMMEND that you fail SMALL now, to avoid failing BIG soon after. It takes less “sin” in the market than most think, to kill the urge to act stupidly with LARGER monies.

9. If a writer THINKS gold is going to $500, and his subs are all massively invested in gold, screaming “sell it all!” can have HORRIFIC consequences for ALL parties if they are wrong. What if gold soars and the banks close and the dollar really hyperinflates? That’s the price of being WRONG if you sell all your to play gold super timer. I opened the door to buying the USD when a dollar bull in the gold community was viewed as a MONSTER. But it was more like a small vent in terms of risk capital than a BARN DOOR.

10. I try to balance where I think the market is going with how I think you will act at any given point. I have indeed been buying the USD into weakness. There a bunch of “wannabe” usd bulls in the gold community, but few real ones. Ron Rosen is a real one. At least, he’s looking for a big move up in usd against gold. One of you has sent me some info on his thoughts. He’s an elliot wave person, and he believes his charts indicate gold is going to around 600. That would smash the major uptrend line, the new French curve line, obliterate the head shoulders, and probably be accompanied by new lows on the stk mkt and massive bank and brokerage closures. I’m not sure if he’s thot about the latter two items, but I hope so…

11. Bob Prechter, the “king of the gold elliot bears” is probably the reason JSMineset EXISTS. Jim Sinclair is rumoured to have been enraged with some gold sites promoting bob’s gold bear ideas when gold was vastly lower in price. So he started his own website, JSMineset.

12. It’s a fact that all of Ron’s subscribers and Bob’s subscribers COMBINED have never carried THE kind of size in the gold market that “BigJim” has HIMSELF. Size matters. And when you are making a “sell it all” or “back up the truck” type decision, my suggestion is not to try and outsmart Mr. Big by betting large money on Mr. Small.

13. But Ron’s scenario COULD occur. Do I think it will? No. I think he’ll be buried by the gold bull steamroller. Still, let’s go over HANDLING Ron being 100% correct, because playing in the market (even if you have no choice as you believe your bank accounts could be obliterated) is a gamble at ALL times, and ALL is POSSIBLE. Those looking for a TIME in the market when your bets are a SURE thing or even a NEAR sure thing are on the wrong planet.

14. Even Ron thinks gold/silver will reverse after tanking and has charts showing they could go on to new highs above current prices. My suggestion to those of you learning to trade as professionals, is to simply be patient and wait for substantial weakness, whether it is from 1070, 1200, 1400, or 14 million. You really don’t have any other choice if you want to avoid falling into past loss-making habits. Patience is part of being a professional trader.

15. Those of who you are players would be using any immediate weakness, such as the supposedly horrifying 2% crash in the gold price predicted by Dennis the gold mkt Menace Gartman, to make larger bull bets. I’ll simply mention that if I was leveraged at 20,30, 40 or 50 to 1, as the menace likely is, I guess I’d see a 2% selloff in gold as a nightmare too and I guess I’d also be a menace to you as well with irrational statements fuelled by my terror. I’d be calling gold “way overvalued”. As you read on, I’ll let you decided whether gold is way overvalued, or whether the rest of the world is way overvalued in a “mark to model” bullcrap accounting fantasy courtesy of Dr. Pinocchio. IF there was a head and shoulders top on gold, not a continuation pattern, IF the carry trade was to BUY the US dollar, IF unemployment was shrinking not growing, IF the MACD on monthly chart was on a sell not on a MASSIVE BUY signal, IF US interest rates were rising, not locked near zero, IF Alf Fields, another Elliot man, said his charts showed gold about to tank, IF President Obama’s hero was not Roosevelt the Inflator, IF Jim Sinclair was bearish on gold, IF Ben Bernanke’s next tool in his STATED toolbox was not gold REVALUATION, and IF a quadrillion dollars in failed derivatives didn’t exist, I would probably say the PLAY now is to buy the USD and buy it LARGE. I count quite a few IF’s here.

16. From a purely technical perspective, the daily and weekly charts are showing SOME overbought signs, so operating a SMALL USD buy pyramid seems perfectly rational to me, and I’m doing that in action.

17. I’m interested in MAKING MONEY, not in who’s squiggly lines arrive where they say they will the most accurately. If Ron is correct, I’m a massive buyer of gold into his weakness, and my largest buys end up at the exact bottom of HIS prediction without me reading a word of his writing. That’s ALL that matters. I wonder how much preparation HIS subs have done in case he is WRONG, and they are standing there with NO GOLD.

18. Over the next 12 months, we’re going to know who has talked in a rational manner, and who has acted in one. Speaking of rational ACTION, the latest cot report shows the bankers doing some more modest selling into strength, and the fund long position has rise to 300,000 contracts with more leveraged price chasing on que. I don’t see anything out of the ordinary here. Gold has rallied from 905 to 1070 without a meaningful selloff, one that would cause heavy margin call selling. On a $165 price move to a new all-time high in gold, it makes sense that the funds would be very aggressive buyers, particularly given the new USD carry trade.

19. If you are systematically buying weakness and selling strength, try not to think too much about the gold head and shoulders now. The h&s got you thru some fears as you held in and kept buying around the right shoulder as I talked about the possible upside while team bustout shorted it and bailed. But now we’ve “launched”. Now the thots are “I don’t have enough gold!” Try to look BEYOND the price tgt of the head and shoulders. Look out for many years into many markets. What will carry your forwards? What if I’m dead? Only the systematic buying and selling of weakness and strength. The rest all involves theories, schemes, and dreams.

20. I want to talk more about the END of the gold bull mkt. There’s a bit of a problem making an appearance and it isn’t very funny.

21. The Gold Cover Ratio Issue. When gold was fixed by the US Treasury at 20 dollars an ounce, that meant if you handed the US Gman 20 paper dollars, he handed you an ounce of gold. He was under LEGAL OBLIGATION to do so. Right now, at $1000 an ounce, the value of gold itself has not changed. It still buys the same amt of bread as it did at $20 an ounce. The dollar has changed. The supply of dollars has risen, so the price has fallen. There is more to the VALUE of the dollar than just the supply numbers. Demand of both debtors and creditors for dollars, and confidence, are factors more difficult to measure. There is no obligation of the US Treasury to hand you an ounce of gold if you hand them a thousand dollars.

22. At 20 dollars an ounce, if the Gman printed more dollars, he had to have more ounces of gold on hand to back up what he printed. He had 20,000 tonnes 80 years ago to back up his play money. As the financial crisis of 1929 accelerated, he got the brainstorm: “We need to spend money. Let’s print more money and spend THAT. First we’ll forcibly buy all the gold we can. Then we’ll print the money which will mean it takes more dollars to buy gold. But the stupid citizens won’t have any gold because we scammed them out of it. So they’ll buy the stock market and other “stuff” as they’re afraid the dollars will decline more in value. The US gold reserves have fallen from 20,000 then to 8,000 tons today(and many argue the number is less than 8000).

23. Some of you have said, “a new gold standard can’t work, there’s not enough gold to cover all the dollars !!”.

24. This is where it gets very very serious. In the 1930s the govt didn’t have enough gold to cover all the dollars they printed at $20 an ounce. So they raised the price they would pay for gold by about 70% to the $35 area. Instead of covering the dollars with more gold OUNCES, the Gman covered his dollars with more gold PRICE.

25. Right now, there is NO COVER. None at all. Jim Sinclair has HOPED the Treasury would launch a new GOLD COVER at about $500 an ounce. He believed that would stop the otc derivatives implosion. That didn’t happen. A ONE TO ONE gold cover ratio means, in my strictest definition, that all the dollars issued by the central bank are no more than the number of dollars required to buy all gold held by the treasury at the current market price.

26. But a gold standard need not be a full one-to-one ratio. Some gold cover ratios of possibility include only locking the dollars held by the central bank against the gold held by the treasury. The gold standard can be of varying strength. The more dollars covered with gold means either more ounces of gold or a higher gold price to do it, or both.

27. Now, I know the public spent most of their investment lives in a laughing contest over who could bash gold the most. Laugh at the gold sword and you shall die by it. Gold has only just BARELY begun it’s punishment of these idiots.

28. Here’s the great danger we face: Jim Sinclair’s hoped for $500 gold cover ratio has NOT occurred. There is still ZERO gold cover in place. The economies of the world are in MELTDOWN mode, notwithstanding the mark to model accounting that President George Orwell now uses to show a new boom is coming any day now. Jim believed a failure to enact the gold cover at the gold $500 marker would unleash “unthinkable” economic consequences as a $70 trillion garbage dump of otc derivatives would explode. He then surmised that the $1600 area would be the next stop for gold where the gold cover could be installed.

29. The HORROR is that the OTCD garbage dump grew from $70 trillion to $700 trillion with no cover ratio brought in. Tens of trillions of dollars of these contracts went to zero for the losers. OTCD’s are simply a private bet between two parties, like me betting you that gold rises to $1400 by year-end.

30. The banksters are on the winning side of most of these contracts, as most of the buyers were fuelled by greed, as the bankers knew they would be, leveraging their corporate net worth many times over in the greatest price chasing frenzy in history, dwarfing all other bubbles in world history.

31. Huge numbers of major firms worldwide were suddenly facing total bankruptcy and liquidation as the stk mkt and real estate prices turned down. Their leveraged bets (otcds) had bankrupted themselves. To collect a portion of their winnings, the banksters would have had to close down most major American businesses in an asset liquidation beyond comprehension. They agreed to settle for a partial payout, via a taxpayer funded money printing spree.

32. The financial system is dead. It’s worthless. Whatever happens going forward is about the banksters collecting the hundreds of trillions they won on the otcd bets. AFTER the banksters collect all they’re owed, they’ll really go to work to recapitalize the system. This is all an act right now. How much do they figure they’re owed? I don’t know, but I’d put $100 trillion as realistic. That’s assuming only 10% of the otcds are worthless. I’m being conservative. They’ve collected about 10% of that $100 trillion estimate. My view of the banksters is they want EVERY PENNY they are owed. The global currency is about paying off the banksters with creative financing. If the US govt prints up $100 trillion to pay the banksters right now, the USdollar goes to worthlessless and gold goes infinity. That won’t happen. The banksters don’t want to be paid in monopoly money. A world currency and a world tax will make sure the banksters receive every penny of the trillions they won legally on the otcd bets. A world central bank makes it a DONE DEAL. There will be no real mark to market accounting, because the system would shut down one second after the numbers were released, and the banksters would never collect a fraction of their debt, let alone get their world superbank new playtoy.

33. It is beginning to look like a gold cover at $1600 gold CANT WORK. Because it won’t just FREEZE the growth of otcds, debt growth, govt spending and the dollar bear, rather it will CAUSE the MARKET to recognize tens of trillions and probably hundreds of trillions in losses on the otcds. BECAUSE THE OTCD LOSERS AND THE GOVT CAN’T EVEN EXIST WITHOUT BORROWING MORE MONEY IN MASSIVE QUANTITIES RIGHT NOW. IF THE MONEY PRINTING MACHINE IS LOCKED DOWN VIA A NEW GOLD COVER RATIO, THEY ARE TOAST. A GLOBAL IMPLOSION WOULD OCCUR, PROBABLY WITHIN IN DAYS, BUT CERTAINLY WITHIN WEEKS AS THE ELECTRONIC PRINTING MACHINES WERE TURNED OFF.

34. So it appears the decision has been made to once again, to raise the point in time and price for the gold cover. Like raising the debt ceiling, raising the gold cover clause is underway again. Because the otcds grew by tenfold, from 70 trillion to 700 trillion, the gold cover is showing higher and higher odds that it CANT work to halt the dollar bear nor the OTCD monster at gold 1600. The world’s largest debtors, meaning the losers of the otcd contracts and the US govt, need to borrow MORE money to EXIST right NOW. Not less.

35. What gold price and what number of ounces can cover the growing pile of US dollars being printed in a manner to stop the growth of the dollars being printed without causing a deflationary detonation as the cover is implemented?

36. IF it’s “on to alf’s numbers” it’s also “on to Ben Bernanke’s final tool: Money Printing.” WHAT could cause Ben to pull out his final tool, his nuclear bomb, and USE it? You need a DEMAND for dollars to print them. That demand can be the demand of the debtor or the demand of the creditor. It is the demands of the otcd debtor for dollars that are behind the logarithmic rise in the govt debt. The govt debt is really the otcd debt with some trimmings. And you know the banksters love nothing more than a great family dinner of roast public money pig with ALL the trimmings.

37. The reality is that instead of a gold cover implemented at 1600, the US dollar is at risk of REAL hyperinflation actually occurring. This goes beyond “the funds might become afraid that hyperinflation could occur, but it won’t”, which was the backbone of a gold 1600 cover. Where will it all end? With programs like “cash for clunkers” being replaced with “mass bombs for mass bodies”? Suddenly my own $6000 target for gold… is alive again.

38. Be prepared. Be prepared for any possible gold weakness as the daily and weekly chart are overbought. Be prepared for that overbot condition to continue for months while gold surges higher. Be prepared for the stock market to continue much higher as some small institutional money fears hyperinflation. Be prepared for the stk mkt to collapse on some surprise otcd meltdown. All revolves around the OTCD crises, but how it plays out can’t be predicted, but it CAN be prepared for.

39. When I mention increasing your sell increments, I’m talking about tactics like tweaking your weightings in the DIRECTION of outer core position parameters, to increase possible reward, going from buying gold $10 down and selling $30 to say buy gold every $10 down to selling every $35 or $40 higher with some of your trading sell points. Or buying every $15 down and selling every $45 higher. Tweaking in favour of reward. Do that if you are a professional who is interested paying SOME attention to the head and shoulders pattern. If you are a player, this is your time to shine, as either a bull player or a bear player. ONE of you is going to make a pile of money and the other is going to take some major damage. Only Dr. Time knows who will win.

40. If you a pure technician you are watching the neckline area of 1035 and the 60 minute chart ready to pounce. My suggestion is you don’t assume 1030 or that area IS a bottom. Establish a “neckline range pyramid”.

41. What if the bears are correct and gold falls to 600? Well, that’s mighty interesting, but my focus is on being prepared to buy gold all the way to zero. 600 is snack pack territory.

42. I’ll be working on email questions in a couple of hrs, I haven’t forgot...Reminder that next week’s updates will be almost all chart-related with a lot of charts links in the daily updates.

43. My bank trader friend today told me he is looking for gold 950-975, he’s still –somehow-alive with his long usd position, then he sees a beeline to gold 1500. He’s looking for Dow 9000 to go with 975.

Cheers

Stewart Thomson

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