Dec 30, 2009

1. This was a very hard update for me to write. I see the gold community as extremely weak right now. I don’t have any choice but to proceed:

2. In a war, sometimes we strategize. Sometimes we retreat. There is a time for the use of different tactics. Making money in gold requires a commitment to gold itself. Not to gold price direction.

3. Once you understand the real power of gold as the world’s lowest risk investment, you understand that gold price weakness is the greatest event that can occur. Weakness allows you to increase your position, increase your forces. I’m not so sure you’re going to get as much of an opportunity to do that as gold land is telling you.

4. A couple of you sent me some writings stating that the comex open interest is under 500,000 contracts and 70% of those are longs. Yesterday we had Marty Feldstein calling gold a high risk investment (I wonder if he was involved in tanking Harvard’s endowment fund with otc derivatives? Gee, there’s nice low risk investment, otc derivatives).

5. Today we have the 1 +1 = 3 gold bears team stepping into the ring for battle. Against you. Some of you have doctorate degrees in Engineering. This is your opponent in the gold ring: A goldbear who, in all seriousness, cannot add 1 +1. And YOU are AFRAID of losing??? Here we go: A gold futures contract is held by a long and a short. If you look at the latest COT report, you’ll see about 688,000 contracts in open interest (the total outstanding contracts). A CONTRACT is a DEAL between a buyer and a seller. Period. Somehow, the bears don’t seem to understand that simple concept, the concept that 1 buyer +1 seller equals 1 contract. Yet these same bears know where gold’s price is going. Sure they do….

6. If you add up the longs held by the 3 groups(non-reportables, commercials, large speculators) you’ll find that the totals balance out to about 519,000 contracts of longs and 519k shorts. The higher 688,000 number is gained if you add in the spreaders. But the fact is that if you look at the numbers within the main groups, it is 50-50. 50% longs and 50% shorts. If you add the non-reportable numbers to the stated 602,000 longs and 654,000 shorts you get 688,000 total longs, and 688,000 total shorts. 688,000 outstanding CONTRACTS. Again, the contract being between a buyer and a seller. 688,000 buyers, 688,000 sellers. Are we clear? There is no 70% long position on the comex that is “too high”, as the bears say. 1 +1 actually equals 2. Not 70.

7. And the bottom line that matters on the cot report is who bought weakness and sold strength, not some ridiculous interpretation that a long position is “too high”. That’s a jelly roll statement. Look at who is responding to price and who is making up fantasy predictions with phoney numbers, numbers created thru stupidity or deliberately to mislead you. The banksters respond to price and they are market winners. End of story. Are those claiming gold is a bubble making you any money shorting gold? Yes or No? I covered metals shorts into 1075, shorts I put on into 1225. Telling me gold might go to 700 as a bullying attempt to scare me will not work. Grab the gold bears’ gun and point it in THEIR face. Hey, Mr. Goldbear, I’ve got a message for your BULLYBRAIN: Gold is going to THOUSANDS of dollars and YOU are going to the BREAD LINE. When they ask WHY, you tell them: That’s for ME to know, and for YOU to find out. Now get lost, scram.” You must think like this, now, to defeat the bears. If there was another answer, I’d give it to you. There is no other answer. You are NOT the brain. All you have is your SOUL. Use it. Don’t turn on gold. If you do, gold will destroy you. Look out there in investment land. A wasteland of failed price chasers. Do you want to end up like them, total losers in the market who lie about all their losses? Gold is your friend, but if you turn on it, it will RAVAGE you.

8. Do you know what the BRAIN is doing right now? They are working out GIANT trades for gold thru Q1 2011. Battle plans of action for huge position trades. Not day flips. Not price prediction garbage. POSITION TRADES.

9. The bears go on and on about gold demand falling. Price looks ahead, not behind. That fact that gold has traded to 1200 with the public in “dump it at the market with a pawnbroker” mode, with physical demand tanking, shows you how TIGHT the physical market IS. I’m talking about the dealing market. Despite the fact that the end users of gold need vastly less of it because of the tanking world economy, there is still a hugely tight supply situation that has price trading where it IS.

10. I want to go back to my first point, to bring ALL of you up to speed. Jim Sinclair sounded demoralized (briefly) on Monday. He spoke of being “alone” as a bull amongst the heavyweights. I got a phone call from a non-gold community biz associate yesterday. His first words were: “I hear gold is going to 700.” How pathetic. He’s a total lifetime market loser. A price chaser. And HE knows gold is going to 700? What HE knows about gold, at BEST, is: ZERO. That “gold is going to 700” wave is sweeping the gold community. And those using it to BULLY YOU are going to be OBLITERATED by GOLD.

11. Gold is on the offensive now. No more defence. The damage that Roosevelt did to the American SOUL by attacking gold ownership is astronomical. America was turned into a bowl of debt-soaked, price-chasing jello. The banksters love it! They want everyone to be price chasers so they can take your money. They love watching gold land bustout of their gold because some worm is crying his eyes out that gold “might” fall to 700. In his pathetic world, that’s a total disaster, a major event. Are you committed to gold? Or are you a gold price chaser? The first step to taking out the banksters is getting as tough as they are in the market. Hoping the Gman will arrest the people that give him orders and pay his way will NEVER happen. You’ll see patsy’s and frontmen arrested. Not the real banksters. You saw what the banksters did at Gold $1075 in the cot report. They BOUGHT. That’s a REAL WORLD event. They WON. VICTORY comes to those who buy gold weakness. Not to gold WORMS and BULLIES. The great failure of BOTH the paperbugs AND the goldbugs is the failure to understand that gold itself has NOT been weakened by Roosevelt nor those who followed him. He weakened the American people. Not gold.

12. Let gold work for you. Trust its strength.

13. Here is what is coming:

14. “Lower profits leads to lower Federal Tax revenues. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit). It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.” – Jim Sinclair.

15. The bond market is TOAST. Morgan Stanley pulled the plug and now all the worms that bought bonds paying micro rates in a safety-chasing frenzy, are going to get flushed. “Yee ha, I’m smarter than JP Morgan, I’m on the other side of their trade. I will win!” – Joe Failed Stock Market investor, as he loads up on bonds AFTER a 30 year bull market. Quick Joe, there’s still some junk bonds available you can grab in a final price chase before Morgan throws them, and you, into the toilet. Run, go get em, grab that exact top, you can do it!

16. Those of you that think real estate has bottomed may be correct. I doubt it. Even if you are, I doubt you’ll see much higher real estate prices for 20 years. If you buy a house with a low interest 20,30,40yr mortgage, that is probably a wise decision. Because paper money is going to go down in value. So whether home prices rise or fall, the dollars you pay each month will be worth less. Making you a winner. But counting on some new real estate boom to me is a bet that 1000 trillion in otc derivatives does not exist. It does exist. And the damage from that existence is yet to be experienced. So home prices could rise, even to new highs, but the VALUE of the dollar will be so low that the value of the home will be far lower than it was in 2005. Far, far lower. My own view is that John Templeton will be proven correct, and prices will eventually decline 90% from the 2005 highs. Like the Japan stock market bear, waves of real estate bottom callers will appear, and the first already have. I believe they will be swept out to sea, demoralized, broken, drowned. This could continue for 10 years or so before a final bottom is reached. One of the greatest errors of the amateur investor is believing that because price has bottomed, it must then start rising right away. I would expect to see the coming rate rises coincide with a wave of mortgage rollovers. I believe the worst is yet to come for residential and commercial real estate. Farmland should enter a huge bull market.

17. The Chinese Gman has stated they want to take their central bank reserves to the 10,000 area level. That is HUGE. Paul Tudor outlined his view that the world’s central banks are going to be substantial gold BUYERS for MANY years to come. Take THAT gold HANDGUN and stick it in Mr. GoldBear’s mouth and see how he likes it. Let him choke on it a bit. Then pull the trigger. Still think you should be standing there WATCHING the current gold weakness? Penny wise and pound foolish is the hallmark thinking of a business and market loser.

18. Gold tanked to 250 because the central banks offloaded and bought dollars. Now they are offloading dollars (in failure) and buying gold as a long term policy. In terms of making money for the taxpayers, it’s a stupid policy. I would argue their actions in the gold market over the past 100 years border on treason. In terms of making money for myself, however, their actions are FABULOUS.

19. Do you see how stupid the bears’ arguments are? Their showcase play is a correction to 700. Penny wise at best. What if the central banks move into gold now and buy in the open market, while you are OUT waiting for Godot, clutching your technical indicator you think God gave you? When you play with God’s tools, you will find He might not be as happy about that as you think. Have you really found the markets holy grail? If you think you have, you haven’t. Respond to price. Every thought you have ever had and ever will have about the markets, the banksters have already thought of that and have tested it inside out. You have invented nothing. You are only discovering bits of reality. A little bit of knowledge is a very dangerous thing. Sorry to say, but Godot700 doesn’t exist. What does exist is the Gold Tiger. Are you going to be shredded by him along with the paperbugs? The choice is all yours. A huge array of central banks are going to become PLAYERS in the gold market soon. Volatility, our personal FRIEND, is going astro.

20. If you are having a hard time buying gold now, multiply that effort by about a MILLION and you’ll have a picture of the job you’ll be faced with if you bail now and try and get back in later.

21. The US bond market is the king of the paper markets. Where will the money go as bonds tank? How will the US govt deal with plunging tax revenues WHILE seeing their debt-servicing costs go thru the roof? And that’s on a DEBT that is ASTRONOMICAL AND GROWING ASTRONOMICALLY FAST.

22. This is a catastrophic situation. There is only one “solution” to avoid default. Attack the dollar. The weapon of attack? Gold. US Govt Tax Revenues have fallen by about 800 billion over the past 12 months by some measurements. Our own kingkong, who has a masters degree in taxation law, sees tax collection in a near-crisis. What happens if rates skyrocket, what happens to tax collection then? What happens as bankruptcies, mortgage defaults, credit card defaults, corporate earnings…all these go into the tank? Corporations are taxed on profits, not revenues. The game of firing people then pretending your profits went up is running out of time. For the Gman. When corporate earnings go back into the tank, down go tax revenue collections. Corporations are soon going to want to declare losses, not profits, because there is a BILL for profits. Not for losses.

23. Think about the banksters collection of trillions from the taxpayer wieners, yet their refusal to lend it to business. They are looking AHEAD. They are preparing for the rates rise game, the bond mkt destruction game.

24. Here we are on Dec 30. Only two days to go for 2009. Paul Tudor has his way of looking at the gold market. His way, is my way. John Paulson has his way of looking at it. His way is: my way. Jim Sinclair has his way of looking at it. His way, is my way. The brain is taking delivery of their comex gold. His way, is my way. The world’s central banks have their way of looking at gold. Their way, is my way. Throw in buying gold weakness and selling strength via the pgen as a strategy and you have the gold bull team. Please show me your bear team you bring to the battle. Here’s the bear team as I see it: Failed market investors who are terrified gold could fall a few hundred dollars who have noticed that industrial demand for everything is down. Why would demand for jewellery soar in a recession/depression? Gold is trading as a currency, and it is fast becoming the currency of choice for new reserves purchased by the world’s central banks. I’m not sure why, but the gold bears seem to think dentists using less gold is more important than the Central Bank of China embarking on a 10year buying spree, leading most of the world’s central banks in the same MARKET ACTION. Show me something REAL, ANYTHING, that the bears bring to the table. I have yet to see it.

Cheers,