Graceland Updates 4am-7am

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Email: s2p3t4@sympatico.ca

1.   Welcome to the Big Leagues.  I keep telling the gold community that the Chinese people and Chinese corporations should not be confused with the Chinese Gman scumbag.

2.   Stratfor, one of the most respected information services in the world, announced that the head of the Chinese central bank might be missing, and now it’s hitting the mainstream media, although the spin machines are in power mode downplaying the situation.  Imagine Ben Bernanke running away!  That’s the magnitude of the situation!  I told you, repeatedly, that the Chinese central bank/Gman had massive losses on their US dollar and bond positions they bought in a crazed price chase, from the banksters.  Almost nobody listened.  Instead, they told me what a master investor the Chinese Gman was, while I called him a bustout. Let’s repeat the issue today, in a different way:

3.   Knock, knock.  Anybody home?

4.   The horrific bottom line is that it appears that bank chiefZhou Xiaochua lost “only” $400 billion.  Why would he buy bonds (in US dollars!) in that kind of size, after 30 years of a bond bull market, and at the end of the US dollar bull market? Sadly, I suspect only his personal tooth fairy knows the answer.

5.   $400 billion of Chinese taxpayer money burned up in flames.     If I was in Zhou’s place, I’d try to run away too.  So much for him “dictating” to Helicopter Ben.  Speaking of helicopters, I wouldn’t be surprised if the banksters offered Chief Zhou a ride in the Bre-X company helicopter, for his “getaway”, if you know what I’m saying…

6.   I also told you, again repeatedly, that the Chinese US bond position was about as worrisome as a fly to Ben Bernanke,   when compared to the abyss of hundreds of trillions of dollars of worthless OTC derivatives garbage.  Now you see the reality.  The Chinese bond blowout, in terms of hilarious stupidity, is topped only by the Chinese Central bank’s microscopic gold position.  “After five thousand years, we’ve managed to accumulate one, maybe two, maybe even three  thousand tonnes of gold.  Honestly, we’re pro-gold for our people, we promise!” The Chinese banksters have zero intention of putting any serious gold holdings in the hands of the people, unless it is at sky high prices.

7.   The global banksters, including the Chinese banksters, who are 100% in on the game, use gold to control the paper money system. There is no intention to replacepaper money.  The game is to dilute the common person and lock debt levels.  There is no strategy to end debt.  Why would the banksters want to end debt just as rates are set to soar, set to make the average person almost a financial slave?  The banksters are slobbering for the end of the bond bull market.  “My golf ball advisor told me there wouldn’t be any more bear markets in bonds.  It’s a new growth with safety era, he read directly from the company’s research report and that’s what it says, and he’s highly respected.  I’m putting my stock market carcass into growth with safety.  I can’t take another hit with anything risky.  I made 15% last year in bonds, and my dog promised me that will continue forever.  My golf ball advisor has me fully diversified in 35 growth with safety investments.  I’m very happy with my new safe strategy” – Elmer Fudd, Master Price Chaser, Aug 31, 2010.

8.    Prediction: The US dollar will blow out the lows and send Public Investors (who I term, “Elmer Fudd”) into a terror that will rival the terrors of 1929, as the news headlines (operated by the banksters) scream, perhaps by the hour, “The End of Paper Money?!”.  It will be at that point of terror that the banksters begin a massive accumulation of US dollar paper money, while Fudd hits the bread lines with no job, his “growth with safety” bond and paper money cash scheme in a bonfire.  He and his price-chased pipedreams will be 100% broken, mentally and financially, by the banksters.  How totally horrible.

9.   At that point the world would not look good.  Professional money managers would be buying the stock market out of fear, not optimism.  The stock market will soar, but Fudd won’t be a player, not for another 50 years.  The news headlines will talk openly of real hyperinflation.  The double dip will have turned into a vertical nose dive for the common person.  Commodity prices, except home prices, will be in the stratosphere, and gold juniors will be “beyond stratospheric”.  While the t-bond might not have collapsed (unlikely that it doesn’t), the junk bond markets (Fudd’s growth with safety clownshow) are likely to be inArmageddon Mode.

10.           All of that is without even mentioning the horrific geopolitical situation developing in, and enveloping Iran, Turkey, Lebanon, and Israel.

11.           You will soon witness a transition of “lead man” in this crisis from Ben Bernanke to Mr. Tim Geithner, head of the US Treasury, for the gold revaluation stage.  QE will be kept alive as a tool, as low rates are kept alive as a tool now, but gold revaluation will take the big stage.  Remember, if Helicopter Ben devalues the dollar without the Treasury’s permission, he heads to the clink.  It is the US Treasury that has sole power to devalue the dollar against gold.  Sole power to devalue most of the world,while the banksters screech with laughter.

12.           Silver.  A firestorm of “Silver Breakout, Buy!” calls occurred as silver rose above the supply line of the symmetrical triangle.  I sell all upside breakouts.  There were “only” several dozen opportunities to buy silver a full dollar lower than the breakout point.  Few did.  Now, as we approach the Jobs Report, aka The Bankster Games Report, all the price chasers are on board with their overleveraged futures contracts, ready for the silver moon shot.  There must be a very large number of stoploss (takeloss) orders in the silver market now, and the bankster hunter-killer algo robots will be in full seek and destroy mode, looking to take those long silver positions for themselves.

13.           If silver gets hit here, will you be a buyer, or part of the takeloss inferno?  Here’s the chart. Silver Chart. I am the very first to say the triangle looks excellent.  The better the look and the larger the size of a chart pattern, the more reliable it is, and the more the banksters are going to want to hog all the profits from the move for themselves.

14.           Let me be crystal clear on my position that Gold is the world’s most powerful financial market.  Silver and Gold Stocks, particularly Gold Juniors, are preparing toconfirm gold’s move to new highs.  I would be concerned about gold if silver went to new highs but gold didn’t.  The reverse is the case here.  While gold is the world’s most powerful financial entity, it functions as a control mechanism, and only asserts its power when push comes to shove.  No asset, except perhaps arguably food, can defeat gold in a market death fight, but most of the time there is no death fight, even now.  In a death fight, gold goes to infinity against paper money and paper money goes off the board.  End of Story.

15.           The silver triangle is part of a much larger head and shoulders bull continuation pattern.  Here it is, with the Kitco chart providing the best illustration of what is going on:

Silver H&S Bull Continuation Pattern. Notice how I’ve drawn the neckline.  The neckline in the head and shoulders is not started from the high at 21, but from the rally high after the decline from 21.  Head & Shoulders bull continuation patterns are not understood by most investors, with many actually believing they are top patterns.

16.           When gold formed its own H&S bull continuation pattern, I got a plethora of emails from readers who got their technical analysis education from every book except the Edwards and Magee “bible”, informing me that gold was topping because a head and shoulders top was in place.  The top callers were destroyed (They lost, & I won for you).  A head and shoulders pattern can be a reversal or a continuation pattern.  Reading the cover page of Edwards and Magee doesn’t make you a head and shoulders master, unfortunately.  You actually have to read the book, numerous times.

17.           In regards to the stock market, paid subscriber Ironman points out the latest Hulbert numbers showCorporate Insiders are more bullish on the stock market than at any point since the March 2009 wipe out lows, the point where Elmer Fudd Public Investor accelerated his great “growth with safety” expedition in the bond markets, that he started in Oct 2008.  Here’s the daily chart for the Dow.   Dow Daily Chart.

18.           The insiders are on the buy, yes.  The technicals are becoming oversold, yes.  Elmer Fudd Public Investor wants nothing to do with the stock market, check.  Still, September is stock market hurricane season, so you want to keep in mind that while the Dow “looks good”, we could easily drop a thousand points lower and the insiders would likely be joined by the banksters on the buy side while the funds freaked out and liquidated.

19.           It’s important that you see the Dow as a ten dollar stock.  Not a ten thousand point monstrosity, a 10,000 foot cliff with you teetering over the edge with your only support being a stoploss on a pile of SP500 overleveraged futures contracts. View each thousand point increment like a dollar move on a 10 dollar stock.  You buy a little at $10, and if it falls to $9, do you freak out and run to mommy?  No.  If you are using my Pgen, your buys are kicking in while you are in yawn mode, just as a veritable machine gun firing of profit booking kicked in from 9000 to 11,500.  Relax, that’s all the Dow is, a little ten dollar stock.  Take control, with precise allocation of risk capital, not pot shots with your granny’s life savings.

20.           Here’s a much bigger picture look at the situation, via the Dow Monthly Chart. You can see that in the big scheme of things, it’s just a ten dollar asset, and whether we bottom here, or drop thousands of points, it doesn’t matter, provided you are not trying to take on the bankster aircraft carriers with an overleveraged popgun.  There’s a zillion products available to play the Dow in small increments, including allocating 30% of your risk capital to a shorting component.  Trade smaller than you know is rational, and you’ll start booking wins, while your competitors book themselves a spot on the bread line.

21.           What about gold?  My partner “GoldArtist”, who trades like Jim Sinclair’s father, with no charts, just an understanding of people and a sort of 6^th sense about the market, notes that the short covering move up to the 1230 area happened very fast, and his “sensing” is the banksters want gold higher before their next hit.  He’s called for 1240-1250 from the 1160 area, and that’s where we are now.

22.           Our sell orders in the 1240 area were hit, and there’s more up to $1250.  I’m happy whether gold rises $100 from here, or falls $100, and nobody in the gold community should have themselves positioned so they freak out if gold fell $100.  Quite the opposite.  You have to be prepared now, to buy when such a hit occurs.

23. Here’s the Gold Chart. Note carefully the 4,8,9 MACD series.  It’s starting to roll over, and has given a sell signal, and the 8,16, 9 series is on the verge of doing the same thing.  Whether that is voided, or it carries into the 12,26,9 series that is obsessed over by most technical traders, we can’t know.  “Don’t fall asleep at your gold wheel”, is the theme of this week.  Just because gold is quiet now, does not mean we end the week in yawn mode, not at all.  We had $110 of weakness that was bailed on by many in the gold and fund community, and now we’ve had $90 of strength, that has been bought by the same people.  Do NOT buy strength.  Booking profit is the story of any and all action you are taking, here and now, with your trading positions, while tightening the vice on your core positions.

24.           Here’s the GDX Chart. I’ve heard the talk, got the emails, on the supposed head and shoulders top.  There is no top on GDX.  There’s rectangular consolidation.  You could also draw it as an ascending triangle, but the demand line angle is so slight it’s a waste of time. The bottom line is that when price rises into either a rectangular consolidation or into an ascending triangle, you have about a 66% chance that your gold stocks breakupside. Juniors could go berzerko if we take out 55 on the GDX!  First, however, we need to make it thru the Bankster Games Report, aka the Jobs Report.  Use any hits the banksters unveil to add to core and trading positions, and use any “breakout” above the $55 area highs to book profit on trading positions, not to chase price and buy a core of toilet paper while the banksters sell.  We’re going higher, way higher.  The question is, are YOU going to be onboard for the ride?  If you chase price, the banksters will grind you up like hamburger.  Stay professional, lock your core down, and put on your Golden Space Helmet!

25.           Special Offer for Website Readers: Send me an Email to freereport4@bell.net and I’ll rush you my free Golden Popcorn report!  Watch my top five juniors priced under 50 cents being readied for takeover and upside explosion!  Note that in my last free report, one of my computers crashed and some of your emails were lost.  Sorry about that.  Please resend your email and I’ll get it out to you if I missed you.  Thanks!

Thanks,

Cheers,

St

Thank-you

Stewart Thomson

Graceland Updates

Graceland Updates.

www.gracelandupdates.com

Email: s2p3t4@sympatico.ca

Risks, Disclaimers, Legal
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:

Are You Prepared?

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Use the above link to subscribe to the paid research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

Many observers to the wild gyrations, deep contortions, extreme measures, and other bizarre activity in the government and banking arenas are suffering from severe confusion. The public is alarmed, even frightened, by the sequence of events, without much benefit of comprehension of what is happening or which clans are in control. The degree of deception hit a peak during the TARP Fund creation and disbursement, done behind private closed doors for the replenishment of sacred preferred stock, that bridge between corporate bonds and stock equity. The deception hit a very high pitch with the financial titan failures, the entire string of them. It has never stopped since. The economic data and promising forecasts (mere marketing group propaganda) featured Green Shoots, Jobless Recovery, and the totally vacant Second Half Recovery that is useful every initial six months to sway the ignorant masses. Just what is happening is difficult to describe succinctly. But the main description reads like an obituary. The most recent and visible distortion is not of price inflation, which has zoomed at 7% annually for a couple years, but rather the Institute of Supply Mgmt. The ISM index has somehow registered a slight increase from July to August, despite almost every single regional index faltering badly. See the careening Philly Fed, from plus 5.1 to minus 7.7 in the latest month. They ignore the weak components and present a distorted aggregate, much like retail sales.

The US banking sector died in September 2008. It has not acted like a credit distribution apparatus in two years. The US Federal Reserve has served almost the complete function, filling the gap like with the decaying commercial paper market. Its several dozen liquidity facilities testify to its urgent need to act as banking system substitute, since the real portion lies in the morgue. The major 100 banks in the US are almost without exception insolvent, and thus do not lend. Sure, they boast a positive book value, but only after given permission to use phony FASB accounting rules. They can declare their assets at any value they wish. In fact, on many debt securities, they actually declare unrealized losses as gains. See the Credit Value Adjustment scheme, an utter travesty and shameful practice mocked by accounting professors. The FDIC came out this week to announce the Q2 list of problem banks went from 775 in number to 829, from Q1. Hardly evidence of a recovery. The USEconomy suffers from a credit strangulation since the banking system at the upper levels is dead, simply stated. The main thrust of the limp activity is monetary creation, banker welfare, absurd programs, and war spending. The more money the clownish hapless awkward leaders throw at the problem, the more the Gold price will rise. Each quantum policy step lifts the potential Gold price another $1000 per ounce.

This article is an attempt to briefly describe what is happening to the United States, from an aerial perspective, regarding the foremost poorly told events, better description of critical event factors, the lost generation of industry, the official investment by the USGovt in profound failure, the confusion from broadening collectivism, the absence of a solution toward restructure and remedy, and what actual solution might include. The popular debate once centered on the banks too big to permit a failure, but that debate became distracted by the flow of events. Only liquidation of the biggest banks can enable a recovery, period!! Of course, the process is complicated, especially politically. Actually, it is more than political, since the big banks control the USGovt. The response reaction from gold & silver will give loud messages to systemic failure, as money is wasted, invested in failure, and directed to the elite troughs. One can argue that no remedy or restructure is even attempted!!

REAL STORY BEHIND FOUR FAILURES

The Bear Stearns episode was the prelude to the failure story, the opening act, the clue for the death of the US banking sector. Its story was a mere partial truth, one that avoided all the inner circle rivalries and hate relationships. The firm did not participate in the general rescue program for LongTerm Capital Mgmt in 1998. It was singled out for execution, a kill at a later date. The Bear Stearns failure was a murder execution for its long gold position and short USDollar position, if truth be told. Wall Street never enjoys or benefits from telling the truth. Deception is its calling card. The Gold price was prevented from finding a much higher legitimate value, from continued control after Bear Stearns was removed from the clique.

The American Intl Group episode was disguised from its true nature as a Goldman Sachs bailout. In fact, the record has been somewhat clearly told that the AIG nationalization enabled GSax to be first in line for credit default contract redemptions, at full price. They saved $11 billion in the nationalization and butting in line. There are advantages to acting as the USDept Treasury administrator. Many other big banks had favorable redemptions on similar insurance contracts. The wreckage of the entire US banking sector was thus covered up from the insurance perspective, preventing a credit derivative blowup. The Gold price did not react from a failure motive, as much as a perceived systemic risk motive. The over $100 billion in covered losses to AIG so far is just the beginning of investment in failure. The USGovt is managing the credit derivatives from under its rickety broken rotten wing. But Gold does react to the waste of money, the debasement of money, and not so much from inflation entering the system. That comes later.

The Fannie Mae episode was one best described as averting either a mortgage bond default or a severe jump in mortgage rates emanating from the sewage treatment plant. In pulling off the nationalization of the wretch, the Wall Street controllers thus placated a crucial angry mortgage creditor. China had been selling all summer long in 2008 its Fannie Mae and other GSE bonds. China forced the USGovt hand as they made it explicit from nationalization. Rumors had been flying in late 2007 and early 2008 that China was accumulating USAgency Mortgage Bonds as part of some contract toward colonization. No more! The USGovt guarantee was implicit but soon made more explicit. The $170 odd billion in covered losses so far is just the beginning of investment in failure. But Gold does react to the waste of money, the debasement of money, and not so much from inflation entering the system. That comes later.

Lehman Brothers was an unwilling sacrificial lamb for its prominence in the mortgage arena. They were an important player that got in the way. The Lehman killjob created a dustup distraction in which JPMorgan was funded $138 billion in a grand reload with USGovt money, to maintain its commodity stranglehold. They were running low on funds to defend the system and to keep America strong, the envy of the world, the beacon of hope. Also, Lehman owned a significant silver position that had gone out of control, in danger of being the object of a critical short covering event that would have rendered huge damage to JPMorgan. Therefore, JPMorgan took it over and assumed its responsibility. They drove the silver price down from $19 to $10 in the ensuing months, with no objection, criticism, or suspicion of impropriety from regulators, legal authorities, or anybody residing in South Manhattan. However, the Silver price returned to face the same $20 level, which it will easily overcome and penetrate in the next few months. Smart investors bought the silver offered at discounted price for several consecutive months.

INVESTMENT IN FAILURE

For vivid indications of failure, notice the slide into recession even after 20 months of near 0% official interest rate. The USFed has no more weapons except the Printing Pre$$, which it will reluctantly use, perhaps somewhat aware of the dire immediate consequences. Central bankers are soiling their skivvies, in utter fear. For vivid indications of failure, notice that the housing sector and commercial property sector do not respond to record low mortgage rates. The average 30-year mortgage rate across the land stands at 4.40%, silly low but uselessly low. Refinance is not an option, given the valuation declines in loan collateral. The ultimate problem is insolvency laced like cancer throughout the entire system, from housing, to households, to banks, to government fiscal situation, even to industry (long gone). The USFed cannot treat insolvency. Only liquidation can. The human toll has been great, from chronic joblessness, to mortgage delinquencies, to home foreclosures, to lost pensions, to vanished financial security. For vivid indications of failure, notice the 2.5% to 2.6% long bond yield in USTreasurys, the last bubble. The US bankers who have run the land for two decades have run out of asset bubbles to blow. Each growth period of 5 to 7 years has been driven by the next asset bubble in sequence, not industrial development or output. Money is being ruined at a rapid rate, and precious metals indicate the pace and severity. As the great bond bubble dissipates from whatever pinprick, the gold rally will move from quiet bullish to monster bullish, complete with a skyrocket event. In the next phase, do not be surprised to see the Gold price rise over $100 on a single day. The financial networks will be bug-eyed and speechless.

Plain language works best at this point. The USGovt, as demonstrated by its nationalizations, big bank rescues, grand aid packages (car industry), and support of extreme measures, has invested heavily in failure, fraud, and banker elite welfare otherwise called pillage. They also has invested in sacred wars at great cost. The USGovt has not invested much at all in business, jobs, family, and life. The flimsy shallow vacant home loan programs exemplify the lack of support and aid for the public. In fact, an argument can be made that the government and banking leadership (tightly twisted together) have contempt for the People. The current administration features a return of failed policy makers, as seen in Robert Rubin, the modern day Rasputin in control of puppet strings. His past failures qualified him for near total banking policy control. As a result, the public harbors growing resentment from the inequality of bailouts and benign neglect to households. The failure to individuals is stark with pink slips and job loss. As long as weekly jobless claims exceed 450 to 470 thousand, nobody will give much credence to any USGovt verbage about a recovery. Failure is in the wind.

GOLDEN RESPONSE TO FAILURE

The failure pertains to the US financial sector in its entirety, from banking system to credit market. The failure is exacerbated by wasted expenditures toward what are called rescues and stimulus, but is actually banker welfare payouts, their toxic bond redemption, and nationalization of failed entities. Worse, the key nationalized firms are laced with $trillion fraud. Fannie Mae remains the central clearing house for several $trillion fraud schemes. In the wake of failure has come round after round of badly spent funds. It is hard to call it money when it pours off the Printing Pre$$ without recourse, without disclosure, and without accountability. Naked bond shorting, failures to deliver bond sales, and extreme interest rate swap enforcement made for a witch’s brew of grand market interference, ruin, and fraud. A prevailing sentiment persists. The consensus lunatic misguided notion is that when the volume of stimulus and rescues is sufficiently higher than a certain threshold level, that recovery follows, especially after a certain period of time. Almost no thinking takes place. The leaders are simply throwing money at the problem and crisis, responding to the next critical focal points. Never has policy been so absent, misguided, and bereft of the thought process. We are witnessing a syndicate in survival mode, in a desperate quest to save the system they exploit so thoroughly.

In response, the Gold price potential rises as USGovt funds are wasted without any path to remedy or recovery. The extreme usage of the Printing Pre$$ in the next round of Quantitative Easing, dubbed QE2, will set up crippling explosions. Each round of stimulus or bank rescue or Dollar Swap Facility setup actually puts the potential Gold price another $1000 higher. The future years will see at least $3000 Gold price, all in time. The 1980 peak Gold price, adjusted by an accurate price inflation accounting, like the Shadow Govt Statistics series, is more like $7000 per ounce. My $3000 forecast figure is a conservative number. Anyone who disputes and challenges this forecast, must provide evidence that remedy, restructure, and reform are anywhere present in the current landscape. They are not. Money is being created and wasted at a colossal pace, and while it is wasted, the Gold price in increasingly debased US$ terms rises.

Favorable upcoming months for the Gold price are finally upon us, especially September. We are at its doorstep of a strong season. A major upward thrust is likely as a holiday present before January. The pattern is even stronger with silver. The month of September is especially strong, almost twice as much gusto packed into it as any other month, the next being December and January. In a five-month stretch, three of the 12 best months are lined up, directly ahead. Last year, the 2009 gold price jumped from $950 to $1200 between late August and end December. Expect something similar this year. Also, institutions like the JPMorgan monster queen might face a date with the guillotine in their silver trading desks. If the ultra-strong seasonality for silver does not catapult its price over $20 by January, it will be a big surprise.

SUPERIORITY OF GOLD AMONG COMMODITIES

Prepare for a breakout in the Gold price, fully forecasted, fully forewarned. A tremendous upleg move comes. The consolidation between the $1065 and $1250 prices has taken nine months. The range between $1175 and $1250 has been tighter in the last two months. A big move is indicated, as the seasons offer a firm wind from behind. Notice the MACD crossover, as moving averages are aligned nicely, but calmly, certainly forcefully. A global recognition of monetary system breakdown is in progress. The QE2 launch, complete with further ruinous debasement of money, is imminent. The unexpected effect that will take inept myopic central bankers off guard is the powerful rise in the Gold price. It foretells of the next powerful phase of the financial crisis that has been covered in detail in the Hat Trick Letter, gory detail. Dan Norcini, the gold, currency, and commodity analyst, put it so well. He said, “What we are witnessing is the death throes of a debt based monetary system, of which those presiding over it apparently have come to believe their own delusions. The US public is learning what our grandfathers learned as a result of the Great Depression. Debt is something to be avoided, not heaped up and accumulated… Yet, all of this is lost upon the monetary lords who have their noses so close to the ground sniffing out the scent that they cannot see that the path ahead leads off the edge of an abyss, from which there is no escape.”

The Gold & Silver charts are both bullish, but in different ways. Gold is lifting off a base, while silver has surged upward out of a pause pattern, as described last week. Distrust for the monetary system has gone global. Gold & Silver are accepted as reserve assets, the best safe haven not tied to counter-party debt risk. Watch the Gold/Oil Ratio, which is poised to rise noticeably. Gold is the commodity king, namely it is money. The worldwide recession will keep the crude oil price subdued until the USTreasury bubble pops. Then, at that time, several major commodity hedges will jump in price, rendering a cost shock to the USEconomy. It is broken to the core, broken at the foundation, broken from grotesque imbalances, broken from vast pervasive insolvency. An inflationary depression lies dead ahead! Notice the recognition of Gold, its distinction as the king of commodities. The usual accepted hedge against the USDollar in Wall Street and London accounts has traditionally been crude oil.

After the severe damage done to sovereign debt in Europe, a wave comes steeped in crisis. Governments erroneously believe that they can inflate their way out of the crisis that has roots firmly connected to debt inflation. This is folly, as they will learn. Notice the King Gold, which is out-performing crude oil. The Gold/Oil Ratio has turned up strongly since the spring months. Deflation Knuckleheads will find they made serious analytic errors, when they grouped King Gold with the commodities. What folly. Gold is money, and money is becoming scarce. The current monetary system is debt in denominated form. The ratio will rise toward 20:1 in the coming months. The USEconomy in struggle, clear deterioration, even possible collapse, will keep the energy prices down generally. The global monetary virus outbreak will lift the Gold price to the heavens.

FROZEN REACTION FROM POLICY

Much of the business sector is frozen. Executives and managers are frozen in inaction from inability to anticipate what comes next. The landscape of regulations and official programs is too rapid, unpredictable, and illogical. We see stupid stuff like Clunker Car Programs. We see disruptive stuff like the Health Care Program. We see unpredictable stuff like the Home Purchase Credit Program. We see uncertainty, like with the home tax credit return. The biggest obstacle to business seems to be the Health Program monstrosity. It forces higher costs upon businesses while officials claim the exact opposite. Nowhere is the confusion greater than the housing and mortgage finance markets. Investors are front running the bond trade, with anticipation of USGovt monetization of more USTreasury Bonds and more USAgency Mortgage Bonds. The prospect of QE2 has brought about a perception that lower mortgage rates could come, and continue to come. The business sector cannot readily hire in this uncertain illogical environment in flux, where leadership is constantly being questioned. The home buyer demand was drawn forward, leaving a late summer and autumn vacuum. See the 27% decline in existing July home sales. The investment community is buying the USGovt guaranteed bonds, ahead of the QE2 launch. Investment in business equipment and capital formation is nearly non-existent. The USEconomy is frozen by erratic policy. In fact, the Gross Domestic Product is negative, once 3% is subtracted from the official downward revised 1.6% growth in 2Q2010. The subtraction is required for entrance into the world of reality, where hedonic and other productivity fudges must be removed.

A GENERATION OF LOST INDUSTRY

This is not a lost decade upcoming. The United States has suffered an entire generation of lost industry from its systematic dismantling, forfeit, and abandonment. The migration of industry began with Japan and the Pacific Rim in the 1980 decade. It continued in the 1990 decade, along with the NAFTA experiment with Mexico. Those border factories were removed with the advent of China. It culminated in the 2000 decade, with the death blow from the Chinese industrial expansion, often dubbed the Low Cost Solution. The entire generation, especially since the Chinese climax, replaced US factory income with service sector income, which included the finance sector from mortgage processing, credit derivatives, leveraged structured finance, and other financial engineering vehicles & structures. The emphasis on clean industry and sophisticated economical development was nothing more than a deceptive billboard to conceal the near total devotion to and dependence upon inflation for economic growth, which backfired and killed the system. The financial engineering offered no legitimate advancement to the society, and certainly not to the USEconomy, except the automatic teller machine, an observation made by former USFed Chairman Paul Volcker. His tenure was ended by the way, as a result of vicious rumors of a cancer debilitation, completely false stories spread by proponents of Alan Greenspan, a syndicate priest of high order. The Greenspan Era justified the virtues of risk offloaded in credit securities, hailed the sophistication of the system, and heaped praise upon each other’s priests, right before the system collapsed from a flimsy and fraudulent foundation, leveraged inflation engines, and absent industry.

THE SOLUTION IS SIMPLE

The secret to a legitimate solution is easy. The big banks must write down their credit portfolios, and accept deep losses. If that results in liquidation, so be it!! Accounting fraud is not a substitute for restructure. Nor is dispatching badly impaired assets to the USFed, whose by all accounts is a Bad Bank Repository. Debate continues on the need to create a bad bank for dead assets, when the USFed is precisely that bank. Toxic assets held by the big banks must be liquidated. The phony propped credit markets must be permitted to fail, and to find proper value via equilibrium processes. Nowhere is equilibrium sought, as everywhere it is avoided. The USGovt should exit and quit the game of stimulus, intervention, and market distortion. The USGovt is delaying the inevitable. The financial markets should seek their bottoms for clearing supply. The bank leaders must be liquidated, removed from power, and face some prosecution. The Too Big To Fail premise must be rejected. The Zombie Big Banks threaten the entire system. If truth be told, they control the leadership of the USGovt itself. Dead entities control the USGovt, lodged in a stranglehold!!

CONSTIPATION WHEN NO LIQUIDATION

This is remarkably simple economics analysis. Without substantial liquidation of the badly impaired assets held in tremendous volume within the big banks, further credit constipation will be the mainstay fixture. That asset clog includes the vast bank owned properties from home foreclosures. The REO count rises about 50 thousand homes per month, a figure roughly double from the January level. Without major liquidation initiatives, expect continued Zombie Big Banks cluttering space. Without major liquidation initiatives, expect continued demands from the Zombies for large tracts of money. Without major liquidation initiatives, expect continued $trillion fraud schemes with Fannie Mae as nexus. Without major liquidation initiatives, expect escalated growth of the USTreasury Bond bubble. In plain terms, the economic landscape and credit system cannot recover without the plowing under of the Big Banks. However, they control the USGovt, its finance ministry in the USDept Treasury, and the USDollar Printing Pre$$ itself. The big banks will NOT order their own death warrant, and face the financial gallows. To think otherwise, even for the national good, is folly. It is like asking a heavily armed bank thief in the middle of a crowded lobby, holding a few dozen hostages, to shoot himself in the head instead, for the good of the people. The credit engines of the USEconomy will not fire much at all unless the big banks are liquidated, or at least much of their balance sheets is liquidated. That would expose their deep insolvency and potentially lead to their failure. A run on those banks by depositors, and a ruinous sale of their corporate bonds by investors, would ensure the big banks death. They belong in the morgue, for the national good. Capitalism demands their plowing under to unleash hidden potential.

The ball & chain dragging down and keeping down the big banks is the housing market. The downward force of gravity is visible in the falling home prices. The deteriorating USEconomy still pulls down the monetary platform, as the credit portfolios are directly attached to the ball & chain. The USEconomy was given the appearance of growth from the housing bubble between years 2002 and 2006. Its asset bubble formed a foundation for the majority of the USEconomy, and whose accompanying mortgage finance bubble provided the liquidity to the system. In fact, the entire boom & bust served as vivid indisputable evidence that the home is not a tangible asset, but rather a financial asset, an abused asset. The mortgage foreclosure process is the final proof. The true tangible assets are crude oil and precious metals. Other commodities will be sacrificed in wholesale form in order to purchase energy and precious metals. Energy is needed for commercial survival, while gold is needed as bonafide safe haven for money.

GOVT DILEMMA

The USGovt finds itself managing a mangled menagerie of frozen fixtures, most of which are totally broken. It is the great investor in failure and fraud. Its actions cover up the fraud, from policy taken in full collusion. Should the leaders give orders that result in formal suicide ceremony of the big banks, a US version of harikari? Should the props be removed and force a USTreasury default? A default will occur anyway in my view, since it is only delayed. The USTreasury default will come as a result of trade war isolation, USDollar vicious cycles in USGovt deficit monetization, a massive sudden USDollar devaluation, or the USFed resignation from its Congressional contract amidst $1 trillion losses. Expect all the above in combination, each linked. The USFed already has compiled close to half a $1 trillion loss on its balance sheet.

A grand game of chicken by the USGovt and Wall Street control panel is taking place. All official plans are predicated upon an economic recovery in the United States. A great fan blows fake acidic money into the bankers trough, but the monetary system erodes as its pillars suffer continued gradual deep damage. The new debt, delivered as fresh paper, acts like acid on the capital base of the entire USEconomy. As described in previous articles, the United States possesses the worst economists in the world. They have no concept of capital formation, no concept of what constitutes money, no concept of legitimate income, and no willingness to liquidate the toxic assets that prevent a restructure and recovery. The big hairball in the system is the big banks. The American public cannot survive on a limited credit diet due to big bank hairballs clogging the system.

HEIGHTENED RISK OF USTREASURY BUBBLE

A growing risk is palpable of migration away from USTBonds. It could come very soon. After the housing & mortgage twin bubbles and consequent bust, the last asset bubble has a little more ways to go. The last asset bubble is the USTreasury Bond, the entire complex. In fact, the bubble extends to the Fannie Mae bonds as well, since under USGovt guarantee. Perhaps a 2.0% long bond yield will be the sentinel signal to abandon and sell, setting up a bond bust. An extreme risk is present for the next important event to frighten the horses that prop USTBonds. What will be the rattlesnake in the sand? Foreign creditor sales in volume? A ramped up trade war? Harsh criticism for improper USDollar printing in monetization schemes, finally in the open? Recognition of a $1 trillion tab in war spending? A river of hyper-inflation is lodged in the USTBond dam, whose walls are nothing more than paper reeds held together by bad verbal glue, uttered by bank leaders who increasingly lack credibility.

Witness the failed central bank franchise system, and USFed Chairman Bernanke without any tools left. Witness the systemic failure of the USEconomy (and Mexico too). All USFed recovery scenarios depend upon a USEconomic recovery, which itself is completely dependent upon a US housing market recovery and a US banking system recovery. No recovery will come, since no Big Bank liquidation will be permitted. Therefore the USFed will walk the pirate plank to a great death of insolvency and ruin, which will spawn a USTreasury default, my forecast made two years ago. It is more certain than ever before. The safe haven is gold & silver. The USTreasury Bond grand dissipation, the long bust process, will catapult the Gold price toward $3000, and suddenly. The gold community will find great amusement in watching the reaction to the naysayers and critics, except the world will change into something hardly recognizable. It will turn into an ugly version of Mad Max, the movie. Shortages and crises will abound. Chaos will reign. A form of darkness will befall the earth.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting.   He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at  www.GoldenJackass.com. For personal questions about subscriptions, contact him at  JimWillieCB@aol.com

UBS, in its annual poll of central bank and sovereign wealth funds found nearly a quarter of central banks believed gold would become the most important reserve asset in the next 25 years.

At its annual seminar for sovereign institutions, UBS surveyed more than 80 central bank reserve managers, sovereign wealth funds and multilateral institutions with more than $8,000 billion in assets.
Asked what the most important reserve asset would be in 25 years, roughly half of polled officials chose the U.S. Dollar, but 22% pointed to gold. Bullion was the second most popular response, well above others such as Asian currencies or… the Euro.

Analysts also said Asia’s central banks, from India to the Philippines, were the most likely to buy gold. They added that central banks and, crucially, sovereign wealth funds in the Middle East were also keen on gold, although some bankers pointed out that sovereign wealth funds were more likely to be tactical buyers, seeking price appreciation, rather than strategic buyers seeking diversification and long-term security.

Casey Research Senior Editor Louis James is very familiar with the gold market and with junior gold companies that have projects all over the world. In fact, he’s visited many of the most promising ones. In this exclusive interview with The Gold Report, Louis offers tips on how to own physical gold and “paper” gold, and even picks some junior gold and silver plays with significant potential.

The Gold Report: Louis, earlier this month the U.S. government sold its new 10-Year Notes at about 2.7%. That’s the lowest yield ever for a refunding, yet the sale was over three times subscribed. What’s that telling us?

Louis James: Any particular event may or may not be a watershed; I try not to ascribe too much significance to one thing. Sometimes it’s a straw in the wind and sometimes it’s the straw that breaks the camel’s back; you can’t really tell until afterward. But this one is interesting. It seems to me what this is telling us is that people are more worried elsewhere than they are in the United States. I was reading about declining numbers from China for about nine months running, and, of course, there’s been all the excitement in the eurozone this year that’s caused a lot of turmoil. 

TGR: What numbers are those from China?

LJ: It was industrial output. This situation is not necessarily evidence of how great and trustworthy U.S. debt is. It’s evidence of how much worse everybody else’s debt is. In the race to the bottom, the U.S. is firmly in the rear—this month. That doesn’t mean the U.S. is not headed down; it just means it’s not leading the pack charging downwards.

TGR: The Fed sale came while the Dow was falling and gold was rising. Do you think this is the beginning of a trend or just more volatility?

LJ: Just more volatility. Even veteran Doug Casey won’t look at the daily price of gold. He will look at the weekly and monthly movements. And if there’s a big price jog in a day, we might discuss it— but again, we try not to ascribe too much meaning to the daily fluctuations. Gold is a volatile commodity, and the gold stocks, of course, are the most volatile stocks on earth. One single buyer can move these markets. You have to, just for your own sanity, pull back and have a bigger picture view. 

TGR: If you had $100,000 to invest right now in 10-year T-bills or the equivalent in gold, where would you put your money and why?

LJ: Absolutely, no question: if those were my only two choices, I would put 100% of that in gold. I have very little confidence in the loser in the race to the bottom. Just because the United States is seen as the “least bad” place to invest and people have to put their money somewhere, that doesn’t actually make U.S. Treasuries a safe investment. When there is as much doubt about the solvency of the backer of any security as there is about the U.S. and the other world powers, it just makes no sense. But that’s actually only half the equation; the other half of the equation is that I am very bullish on gold. 

TGR: All right, but banks and foreign investors are buying these T-bills. If it’s plain to you that buying gold is a much better investment, why aren’t these banks and these other institutions doing the same?

LJ: In spite of the news that gold has made, it’s not seen as an important instrument of investment by most people. If you’re a gold bug or you’re somebody who is already interested in the sector, you see advertisements on the Super Bowl and say, “Oh, wow, this is really catching on! This is going to be like the ’70s and the wave is coming.” Perhaps the wave is coming; I believe there will be a wave. But I am not sure we’re even in the beginning stages of that crest yet. There has been some effort to get the word out, but if you go to a family dinner and you ask your family and friends how many of them actually own gold, unless yours is a family of gold bugs, you’re not going to get a lot of people holding up their hands.

The average person is still not involved in this market, and the average central banker and the average Wall Street type still doesn’t think about gold anywhere near as much as he or she will when the mania phase kicks in. I have a friend who is a financial manager for some very wealthy families in Europe. He’s based in Switzerland, and he, alone among his peers that I know of, placed a lot of his clients in gold before the crash of 2008. He’s now very popular with his clients.

But that’s uncommon. Most people wouldn’t even talk about it. My sister is a mainstream U.S. banker. She called me a couple of weeks ago and asked me how to go about buying physical gold. I was shocked. There is awareness percolating out there, but it’s just barely getting started. 

TGR: Maybe your sister read your piece on Goldseek.com, where you talked about picking up American Buffalo gold coins. Tell us about your penchant for hoarding gold coins.

LJ: Well, I like gold coins.

TGR: But why Buffaloes?

LJ: I like the Buffaloes because they’re unalloyed. It’s as much gold as you’re going to get in a bullion coin. You look at it and it’s just gold, whereas as the Eagles are alloyed with a little bit of copper that makes them harder and more durable. The Eagles are the most recognized coin in the world and most easily exchangeable anywhere you go—but the Buffalos are prettier, and well recognized among those in the business. 

I like having physical gold—the fact that it’s portable and, in many cases, untraceable. The government has passed new regulations whereby U.S. gold coin dealers will have to fill out 1099s on anybody who buys or sells $600 worth of gold. Which means, of course, that the tax man is going to be looking at these things all the way down to a single-ounce coin transaction (unless gold really crashes from here).

That’s a significant change. Right now the anonymity is a strong pull for U.S. consumers. But I think everybody should have some physical gold, because gold is the only financial instrument that is not simultaneously somebody else’s obligation. Silver too, of course. If you’ve got paper gold, even good quality paper gold like Perth Mint Certificates, it’s still a piece of paper. You should have some physical gold in hand. Obviously you can’t carry around millions of dollars with you, but a couple of months’ living expenses is a good rule of thumb.

TGR: But let’s say gold goes up significantly from where it is now. Unless you’re buying something substantial, I don’t see how it’s going to work as a currency because if you want to buy a loaf of bread, how are you going to do that with a gold coin? That gold coin could be worth $4,000.

LJ: That’s true, but there are half-ounces, one-tenth ounces; there’s silver, too. I saw a YouTube video featuring a convenience store in Los Angeles that has a guy in the back with an assay test and scales for gold and silver. At that place you can buy a loaf of bread with your ex-wife’s wedding ring if you want.

But will gold become a currency again? I think there’s a good chance that it might if the financial catastrophe unfolds the way we think it will, and paper currencies, as a whole, come to be regarded with the suspicion that they so justly deserve. But whether or not that happens, it is good to have some form of concentrated portable wealth in times of financial chaos.

I was in the Republic of Georgia, just a couple of weeks before the bombs started falling two years ago, and I was interested to see that there are gold dealers on street corners there. It is part of their culture, and it’s part of Middle Eastern culture. In Mexico, many towns have basically pawnshops where they will buy scrap gold and silver. I’ve used such places to liquidate bullion and buy groceries. On a larger scale, a couple tubes of gold coins that would fit in any briefcase or purse could easily be turned into, say, a house in Argentina. You will find a facilitator in Argentina who would make the exchange happen.

TGR: But how do you protect yourself when you’re carrying around a briefcase full of gold bullion? I mean if you’re buying Buffalo coins fairly consistently, you probably have a reasonable store of wealth at this point, and to me that seems dangerous.

LJ: Well, first and foremost, you don’t tell anyone. [Laughs] So here I am telling people in this interview!

TGR: You stated it on your website long before this.

LJ: Yes, but, seriously, this is the first rule: security through obscurity. You don’t tell your neighbors; you don’t bring out that bar of gold at Thanksgiving and show everybody how proud you are of it. 

For small amounts, if nobody knows about it, you’re not likely to have any trouble. If you’re a serious player, a segregated account in a facility that’s set up specifically for gold storage is a good idea. Some of the near-gold substitutes are also a good idea. I mentioned Perth Mint Certificates before; we like those. The Australian government runs a mint that’s an audited facility; they will store gold and silver for individuals. These certificates are transferable and they’re deliverable. If you get nervous about your gold, you can have them send you your gold via FedEx Corp. (NYSE:FDX). Or you can sign your Perth Mint Certificate over to someone else for paper currency, or whatever you want in exchange.

TGR: In the same Goldseek.com article where you mentioned your coins, you said: “The strategy called for is a more cash-focused version of our ‘buy only the best of the best’ (BOTBOTB) program. Buy nothing new unless you’re offered a great bargain in a solid company that can deliver significant new or expanding production.” Give us a quick overview of your more cash-focused BOTBOTB program.

LJ: What we’re saying is that we’re not in any hurry to have our portfolio fully invested at this point. We see a significant risk of correction in the very near term; yet we are very bullish on gold going forward. We see the second dip in the W-shaped economic slump coming, perhaps by the end of this year. We have already had some of the typical summer weakness. With these possibilities in mind, we don’t want to tell people, “Buy, buy, buy!”—not when there’s a very good chance they will be able to buy at better prices soon.

You want to buy right now only if you can look at something and say, “These guys have all their ducks in a row. Even if there is a correction, they have enough cash, they have the right property and they have the right people that they will proceed anyway.” If you see that in a company you want to own but don’t, then buying some of those shares may not be a bad idea. We could be wrong about the correction, so you don’t want to be completely out of the market.

There are good companies out there that I think will go higher from where they are now. But I already have shares in most of those, so I don’t want to buy more now. What we say to new subscribers in the newsletter is “Here are the ones to focus on.”

TGR: All right, what are some of the companies in your newsletter?

LJ: We like emerging producers or companies with discoveries in hand. An emerging producer that I like a lot is Medusa Mining Ltd. (ASX:MML; AIM:MML; TSX.V:MLL). It’s an Australian company that has quite a large portfolio of properties in the Philippines along a very prospective belt where there have been a number of discoveries. They keep finding new gold veins with great potential in the same property as their very high-grade producing Co-O Mine. Co-O is cranking out about 100,000 ounces a year, a significant producer, but they’re finding more gold at about the same rate as they’re mining it, so the asset is not depleting—a strong plus in an extractive business. They’re able to make money, and they have great discovery potential. I like that a lot. There’s underpinning value there. And I should say it would be safe for anybody reading this to assume that I own shares in these companies, because I do eat my own cooking.

TGR: Hopefully, our readers will consider you a gourmet. What are some other companies you are following?

LJ: One of the companies that I think we have spoken about before is AuEx Ventures, Inc. (TSX:XAU). This company is a project generator. It has multiple projects, most of them in Nevada, but also in a very prospective area of Argentina that’s pro-mining, and in Spain of all places, which is a better mining jurisdiction than most people appreciate. AuEx’s main asset is the Long Canyon Project in Nevada, a joint venture with a company called Fronteer Gold Inc. (TSX:FRG; NYSE.A:FRG). AuEx has 49%; Fronteer has 51%. We’re talking about AuEx rather than Fronteer because AuEx is much cheaper. Fronteer is a great company with other assets I do like a lot, but that’s a different play (partly a uranium speculation).

Long Canyon is just a peach of an asset; it’s a potential open pit, which is your cheapest method of mining, and for an open-pit resource, it’s very high-grade, more than 3 grams per ton gold. And it’s oxide material, which means you can heap leach the ore instead of the more expensive milling. It has all the characteristics of a highly profitable mine. They did a preliminary economic assessment, and the internal rate of return was something like 66%.

TGR: That’s well above average. 

LJ: Fantastic numbers. The resource has doubled since that preliminary assessment, which will improve the project economics, and they continue to step out and discover more. They recently hit 10 grams per ton over 44.2 meters of mineralization; it’s just a peach of a project. AuEx is not particularly cheap today; if there is a market correction, these shares could easily go on sale at a great discount. But at the end of the day, they have a project that looks very much like Nevada’s next gold mine. 

TGR: Any others?

LJ: One that I like, with a shorter fuse, is International Tower Hill Mines Ltd. (TSX:ITH; NYSE.A:THM), which is an Alaska-focused discoverer-explorer developer. Their primary asset is the Livengood Project, on land owned by the state of Alaska, intended to generate royalties to pay for the state’s mental health care system—so they have an ally in the government that really wants to see the project developed. That’s always a good thing for permitting and other purposes. The royalty is a cost, but it’s bearable. The project is huge. Depending on the cutoff grade, it’s almost 20 million ounces, but within that you’ve got 9 million ounces at a good open-pit grade.

There are lots of good things I could say about Livengood. But I mentioned a short fuse; the company has a portfolio of other assets that they’re spinning out into a new company. Shareholders of record at a certain point will get shares in the new company that will get the other assets and some cash to advance them. That should happen over the next month or two. In other cases where we have seen this kind of spinout, it has worked out very well for shareholders.

TGR: International Tower Hill is part of the Cordero Group. When we interviewed you last time, you talked about Fortuna Silver Mines Inc. (TSX:FVI; Lima Exchange:FVI), part of the Gold Group, which specializes in mining plays.

LJ: The group you refer to here is basically centered around Simon Ridgway. The Gold Group has a number of companies—Radius Gold Inc. (TSX.V:RDU), Focus Ventures Ltd. (TSX.V:FCV), Western Pacific Resources Corp. (TSX.V:WRP) and others. There’s a bunch of them, but the projects are all quite different.

In some ways, Fortuna Silver is similar to Medusa. It has a producing mine with a really big, high-grade vein that they could mine for many years, and they’re continuing to discover more resources in that project area. This is the silver-zinc-lead Caylloma Mine in Peru, and it’s another peach of a project—one that has 400 years of mining history and was once a cornerstone of the wealth and power of the king of Spain. It’s a cash cow that is going to continue cranking out cash for years. Different zones have different mixtures or minerals, but a significant portion of the value at Caylloma comes from the base metals. 

We’re wary of base metals these days, but Caylloma has a very clean concentrate that’s actually in great demand. Smelters want Fortuna’s concentrate, because it’s pure enough to use as flux to mix with the concentrate that they get from other mines that isn’t so pure. They have negotiated very good terms with their smelter.

TGR: And then there is Fortuna’s gold-silver San Jose Project in Mexico.

LJ: Right. There’s where the big upside is. You have this cash cow with Caylloma that’s funding the work, and on the other hand, you have this new gold-silver mine that’s primarily silver. We like a gold lining to a silver story much better than a lead lining. It’s bigger too; San Jose is basically going to quadruple Fortuna’s production. And it’s already being built. We expect that to come into production next year and start adding to the company’s bottom line immediately.

There’s always a question you have about exploration companies that become miners, because these are very different skill sets. To discover something is one thing, but bring a mine into production is something very different. Fortuna is one of those rare companies that has shown it can do it. These guys are very good. 

I believe that the technical risk of developing the San Jose Project is very low. The resource is there and there’s room to make it bigger, so you have cash flow, visible growth and a team that has shown it knows how to do things. I like it.

TGR: Where do you see gold finishing 2010?

LJ: Well, our company has been predicting $1,450 to $1,500 by the end of 2010. That was our call at the beginning of the year, so I want to stand by it. Right now, it may seem, “Well, gee, maybe it won’t; gold’s retreating.” But it is common for gold and the gold stocks to retreat in the summer, and it is common for gold to have a very good fourth quarter in the average year.

There are some people who like to try to calculate the correct price of gold, given supply and demand fundamentals. I believe this is all a little bit silly because the supply of gold is essentially infinite, as gold is not really consumed—most of the gold ever mined is sitting around in refined form in one vault or another. At the right price, it comes into the market. It’s just not a commodity that is bought and sold and consumed the way other commodities are, even silver.

The price of gold is really a barometer of fear. Given what we’ve said about the other dip in the “W,” our basic view is we’re still in the eye of the storm and we’re looking to head out into second half of the storm later this year and into 2011. As this becomes evident and fear rebounds, the consequences for gold should be very substantial. People think the economy is recovering and everything’s going to be fine, and that hope is going to get smashed. The level of fear produced is going to be even larger than in 2008. That will move gold significantly.

TGR: Do you have a forecast out on 2011?

LJ: No, we’ll probably do that at the end of the year.

TGR: Do you have some parting thoughts you would like to leave with us with?

LJ: I just want to specify again that I am bullish in the near term on gold, if you think of the end of the year as near term. But in the very immediate future, I am saying there is plenty of room for volatility. If you read this article and go out and buy gold Buffaloes today because they’re Louis James’ favorite, and gold falls off $30 tomorrow, don’t get mad. If gold drops in the short term, look at that as a buying opportunity.

TGR: Thanks, Louie. Interesting to talk with you, as always.

Always on the lookout for the next double-your-money winner, Louis James is the master of metals at Casey Research, where he’s the widely read and well-respected senior editor of the International Speculator, Casey Investment Alert and Conversations with Casey. Fluent in English, Spanish and French—and conversant in German and Russian to boot—Louis (aka Lobo Tiggre) regularly takes his skills on the road, evaluating highly prospective geological targets, visiting explorers and producers in the far corners of the globe, and getting to know their management teams. In addition to subject matter expertise, he’s built a following on the basis of a dynamic combination of investment savvy, practical advice, experience in physics and economics and a gift for comprehensible technical writing.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:
1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report or The Gold Report: Western Pacific Resources, Fortuna and AuEx Ventures.
3) Louis James: I personally and/or my family own shares of the following companies mentioned in this interview: International Tower Hill Ltd. I personally and/or my family am paid by the following companies mentioned in this interview: None.

Silver had very powerful break out today as investors are seeking assets that are safe and will retain value during a debt crisis.  Silver is  seeing demand at these price levels as it is historically cheap relative to gold.  If the ratio came down to the levels it was in 2006 it would be close to $27 an ounce.  Silver is soaring because investors are realizing this is a hard asset, it is money and it is historically cheap compared to gold.

Gold has reached overbought conditions from my July 28th buy signal.  Right now gold is a bit overbought while silver is at an interesting buy point, having found support for the fourth time at its long term 200 day moving average.  Today’s breakout of the symmetrical triangle, a very bullish chart pattern, is a sign that silver has built up a lot of internal strength and could break out into new three year highs. Remember, silver is significantly below all time highs while gold has already broken into new highs.

While I am bullish on gold, I believe investors could see a higher percentage move in silver.  I have also alerted my readers to a specific  mining company which has recently found a major discovery in Mexico.  Pure silver discoveries are very rare.  Silver supply is mostly produced as a byproduct which makes supply very inelastic.  A new pure silver discovery in a silver bull market could receive a nice premium.

I believe silver will make a major move on this break out. Investors are looking for a safe haven, protection and value in silver.  Gold has already made a significant move and is quite overbought, while silver has not participated to the same extent.  The gold silver ratio should move to historical norms which could mean a major move for silver.

If you do a study of the point and figure chart of the relative strength of silver versus the S&P500 since 2001, its strong uptrend is apparent. Each time silver falls back into support, it breaks out and makes significant rallies.

The break above the red bearish resistance line and a double top breakout coupled with the daily chart symmetrical wedge pattern demonstrates that silver has reached a critical juncture and could make a nice move.

Source: http://goldstocktrades.com/blog/2010/08/25/silver-ascending-triangle-breakout-major-move-expected/

A move past the 2008 highs would be an important breakout. However, it is important to note that in both Silver and various large-cap gold stock indices, resistance actually dates back to 1980. For the gold stocks we are looking at a potential breakout from a 30-year base, while for Silver, we are looking at a potential breakout from a 29-year base.

Ladies and gentlemen we are looking at the inception of a historic move in precious metals and precious metals companies. Don’t believe me? Consider that at the end of 2009, 0.8% of global assets were in the precious metals complex. Folks, this was above 20% in 1981 and over 30% in the 1930s. Despite what you may read or hear, virtually no one owns precious metals, and those that do don’t own enough.

As you can see from the picture below, folks are rushing for safety in Treasury bonds.

Sad to say but most folks don’t get it. Those that continue to stick with crappy stocks and bonds that aren’t going anywhere deserve their own fate. Those that get involved in the precious metals will be wealthy when its all over.

Debt default is unavoidable. Inflation or deflation doesn’t matter. What matters is that the US, Europe and Japan CANNOT grow their way out of the debt mess. A new currency regime is unavoidable. The worse the economy gets, the faster we move towards sovereign default, bankruptcy, hyperinflation and a new currency. It has happened before numerous times and will happen again. Don’t be left behind. The train is getting ready to depart the station.

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Use the above link to subscribe to the paid research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

History is being made. The American public has never been no nervous, perhaps fearful of something dreadful and imminent. The global monetary system is crumbling. The typical stimulus has failed to jumpstart the USEconomy. The 20 months of near 0% short-term official interest rate has failed to revive the moribund US housing market. The phony FASB accounting rules has failed to accomplish anything except a stay of execution for the big US banks, which do not lend much. In fact, the US banks are largely dead entities showing enough life for to receive USGovt largesse aid. Witness the failure of the US financial sector. Witness the climax chapter of failure for the Fascist Business Model. The US banker brain trust, which possesses only a modicum of economic wisdom, analytic prowess, or foresight, finds itself in a desperate corner. Their talk of an Exit Strategy in the last several months was summarily dismissed as nonsense, propaganda, and wishful thinking by the Jackass here on a consistent irrefutable basis. The US Federal Reserve is ready to embark on the second round of Quantitative Easing. The monetization of US$-based bonds of many types will be done on a second initiative, on cue. Here is the irony, the stupidity, the insanity, the recklessness, the tragedy. What failed, they will do again, maybe even bigger! At risk is global confidence and trust, hardly a zero cost item.

The urgency of the QE2 Launch will be made quite clear by the Hologram Leaders occupying positions of power, after they digest the latest housing data. The July existing housing sales fell by 27.2% in a single month. The July new home sales fell by 12.4% in concert. Few analysts operating with USGovt service badges anticipated that the empty-headed home buyer credit of $8000 would rob forward sales and leave an autumn vacuum in home demand. It did. Check out the silver price, which touched $19 today on Wednesday. And at $1240, the gold price is poised to make new highs any day. My near-term targets are $23.5 for silver and $1300 for gold. Energy prices are soft but precious metals prices are strong. Think heterogeneity!

The QE2 is pure cancer within the monetary body. Foreign creditors are walking away, making distance from the USTreasurys, and especially the USAgency Mortgage Bonds. The USFed and USDept Treasury are therefore being isolated. Their USTreasury auctions are often disguised failures, but with the benefit of a falling US stock market, the bond demand has risen. The cancer of QE2 cannot be emphasized enough. My forecast a few months ago was for NO Exit Strategy implemented. The USFed balance sheet will NOT be reduced. Interest rates will NOT be permitted higher. My forecast was for an embarrassing About-Face in policy, and a hasty desperate announcement and implementation of a powerful new round of Quantitative Easing. We are seeing it unfold, exactly as forecasted. In fact, my call is for ZIRP and QE, the cancerous twins of Zero Interest Rate Policy and its Printing Pre$$ twin, to become permanent residents of the White House and USFed, an incredible pox, blemish, and badge of shame to the nation. The twins scream rot and ruin.

These shills and carnival barker policy makers need a fresh new education. The two most important indicators in my book are continued home foreclosures and renewed rising jobless claims. The rest of the forecasting challenge is remarkably easy. The nitwit barkers prefer to focus on inflation expectorations, encouraged by the wondrous USTBond rally. What nitwits, unable to read simple signals! What charlatans, pretenders to the thrones! What heretics, ignorant of economic principles! See the August special report that criticizes, exposes, and castrates the clueless cast of American economists. The latest revelation was the $120k payment to Frederic Mishkin for writing about the “Financial Stability In Iceland” in March 2006 whose title was changed to “Financial Instability In Iceland after Iceland collapsed. Mishkin did no research, almost admitted as much in an ugly exposure to these clowns operating in economist suits. See the Zero Hedge video (CLICK HERE). My contention is that Mishkin has no economic skills, and does not understand what money is, just like many on the Federal Reserve Board, whose misguided brain stems extend to most regional governors. Mishkin appears in this instance to be a bonafide whore. One exception might be Hoenig, who has warned of the perils of new monetary expansion. He recently said, “I wish free money was really free, and that there was a painless way to move from severe recession and high leverage to robust and sustainable economic growth, but there is no shortcut.” Hoenig of the Kansas City Fed has emerged as an ideological rival to Bernanke. Hoenig might soon need to be ousted for lack of patriotism and obedience to the fascist throng.

Let me make a paradoxical point: THE UNITED STATES WILL BEGIN A RECOVERY WHEN THE TOO BIG TO FAIL BANKS ARE PLOWED UNDER. They are blocking remedy and restructure. They are resisting liquidation of badly impaired assets. They do not lend money, as their credit engines are broken, since they are dead entities that occupy space in the US financial sector. They cast large long shadows. Their removal from the scene of the crime would surely light a fuse of credit derivative accidents, the likes of which the world has never seen. Let’s try THAT experiment!! Why the leading economists cannot see that credit is down since the big banks are dead is beyond me. One might regard the conclusion is too ugly to contemplate. The entire US financial chapter since 1996, when Greenspan proclaimed irrational exuberance had taken hold of the land, has been ugly, perverse, and ruinous. The nation had its chance to right the US Ship of Financial State in 1987, and instead chose to produce, nurture, encourage, justify, and bless as good a sequence of asset bubbles, while the industrial base was dispatched to Asia. The USEconomy thus replaced legitimate income with grandiose debt sources, followed by national insolvency.

GOLD & SILVER DIVERGE FROM COMMODITIES

The impact from the cancer and desperation of QE2, the next undermine of the USDollar (and other major currencies), can be seen in the price of Gold. Better yet, watch the price of silver, whose price movement has actually been leading gold upward. This week, for the first time in perhaps a decade, silver defied the industrial metals and economically dependent energy sector. Silver is money. Both copper and crude oil fell in price, but silver rose strongly. By the day’s end, gold was pulled up by silver. And this happened on a week that features options expiration, which usually sees a strong naked short pounce by JPMorgan, of course to make America strong and liberty exportable. Witness the beginning of outright visible lost control by the syndicate.

Watch the Gold/Oil ratio, which is poised to rise noticeably. Gold is the commodity king, since money. The galloping recession will take down the crude oil price, as demand falls. The natural gas price fell 3% just today on Wednesday. Hedging against the USDollar risk aside, the energy prices have been weak. By contrast, the gold price has risen from direct demand in response to monetary system risk and lost confidence in that monetary system. The global revolt against the USDollar continues quietly. The government bonds are gradually being considered trash backed by yet more bad paper dispensed by government approved printing houses. My analysis has long pointed to the advantages of silver over gold. Gold fights the political wars, but silver rides in on a shiny white glowing horse to win most gains. The supply factors favor silver. The demand factors favor silver. The shortage is acute for silver.

Again, basic economic thought process not within the mental caverns of US economists. The desperate action to launch QE2 will be quite evident in the coming weeks. It will even become a national priority. The bankers and politicians will rush to destroy whatever credibility remains in the USDollar, or any fiat paper currency. The challenge to banking leaders will be to conceal their desperation and panic. They have had no options or alternatives for almost two years, now painfully evident. The impact of the launch will be extremely damaging to the prestige of the USFed in general and Chairman Bernanke in particular. He has not understood much of any events, surely has proffered a string of errant views and obtuse forecasts. Witness the discredit of the central bank franchise system. Fiat paper money is dissolving before our eyes. Notice the assaults on sovereign debt in Europe, a trend which will hit the US shores, all in time. Economists do not expect it, since the American bankers possess the Printing Pre$$. They will be blindsided by Gold, which pulls the carpet from under the US$-based foundation inside its very structure. The Gold bull market will outlast the USTreasury Bond bubble run. The key word to be heard in the next few months will be CONFIDENCE, as in the absence of it when viewing the US financial helm.

The Powerz in charge will choose inflation over any combination of reform, restructure, and replacement of the helm. A recovery could have possibly been in our grasp, maybe in the future after much pain from adjustment. Unfortunately for the bankers in unchallenged power, the respect, prestige, and faith in the US Federal Reserve will fade like a sea mist after the QE launch. Its christening will be done in deep shame with a bottle of acid. The level of respect is approaching rock bottom, the lowest in decades. Even Alan Greenspan expects slippage and sputters as the housing market resumes its powerful decline. The next recession for the USEconomy could very easily result in a USTreasury default. Scenarios for precisely such a default are mapped out in the August Hat Trick Letter.

IMMINENT GOLD & SILVER  PRICE MOVES

Gold & Silver are entering the most favorable season of the year, autumn. Big gains should be expected. Signals are omnipresent for substantial price gains. Shortages exist and are profound. Demand is on the strong rise on a global basis. Lost confidence and faith in the fiat paper system is slowly vanishing. It would be nice to see the investment community add to positions and put on new positions before the breakout, not afterwards, and be more successful. The return of the USEconomic recession and the simultaneous QE2 Launch will mark a major turning point for gold & silver. Fear is on the rise. The precious metals offer an alternative to conventional nutball strategies, a successful one. Check out the track record for gold, the best asset in the 1990 decade. That fact is not mentioned or cited much by the financial press networks. Their sponsors object.

MANY SIDES OF MONETARY CANCER

Cancer is a strong word. It conjures up images of internal broken functions, nasty growths, blockage of organs, twisted lives, pain, and death. Yes, that sounds right for describing the USDollar and its flagship the USTreasury Bond, with the accompanying destroyer in Fannie Mae. The word cancer fits perfectly. It has brought a removal of US industry. It has brought a wave of bond fraud centered upon mortgages. It has brought endless war, paid by foreigners. It has brought insolvency to US households. It has brought insolvency to the US banks. It has brought a tumor of REO homes seized by foreclosures and put the US bank balance sheets. It has brought a bloated wrecked USFed balance sheet. It has brought chronic $1.5 trillion USGovt deficits. It has brought a mass of Food Stamp recipients. It has brought Wall Street control of the USGovt finance ministries. It has brought a Black of Hole of tainted money. It has brought diverse toxic bonds. It has brought blockage of any independent audit of the USFed assets or activity. Yes, that qualifies as the many sides of cancer.

Consider the next new cancerous faces of the Quantitative Easing. They new policies and features will be so ugly as to reshape the entire American landscape. They will do to the US financial and economic pastures what the Gulf of Mexico oil volcano did to the Southern Shores. These concepts are covered in the August issue of the Hat Trick Letter in greater detail. They are bizarre complicated concepts. They strike dead the heart of US capitalism, and offer a unique brand of fascism and collectivism as a result, with an overtone of desperation. They paint a path toward systemic failure. At the end of that bitter road and death march is the USTreasury Default event, forecasted by the Jackass in September 2008. It earned ridicule, but soon will earn respect, like several other important past forecasts. The path was clear almost two years ago that the US banking system died that month. The obituary cited Lehman Brothers, Fannie Mae, and American Intl Group as pall bearers. The banking system death is undeniable to the enlightened. It will soon be clear enough to the masses after the next leg down in housing.

1) Stiglitz urges another USGovt stimulus program. The last one was hollow. The next should be lackluster and meager, but maybe more on the mark. True reform and broad liquidations are pre-requisites, as they will not be done for preparing the economic topsoil. Bankers will block it. Expect USGovt “beans & rice” handouts rather than conditions for job creation. They should really try capital expenditure immediate writeoffs and job creation tax credits instead, with a slew of obtrusive federal regulations swept aside. Too much capitalist wisdom with such ideas. More ineffective wasteful federal programs and misdirected altering of parameters on the control panel will only aggravate the effect of the QE2 Launch, a typical preface.

2) Former Treasury Secy Rubin argues against a large scale stimulus plan, and instead for deficit reduction. This economic Rasputin presided over the removal, lease, and sales of the national gold treasury. He led the deregulation movement that opened the door to profound bond fraud. He sat on the Citigroup board when it expanded recklessly into many domains, resulting in the wreckage of the corporation. That qualified him to serve as mentor and chief puppeteer to Geithner and Summers, who run the USDept Treasury and White House Council of Economic Advisors. Clearly, Rubin has a different agenda. A constant state of sluggishness might work best for Rubin. He advocates deficit reduction as his main priority, and proclaims a goal of restoring confidence. The nation is way past deficit reduction concepts, but should focus rather on collapse avoidance. Confidence can be restored, and better economic performance enabled, only if the current Elite banks are plowed under, much of their impaired assets are liquidated, Goldman Sachs is removed from control of the USDollar altogether, and stern prosecution of colossal criminal bond fraud occurs. That would produce confidence.

3) QE2 will be more cancerous than QE1, as full dependence upon monetary inflation will come. The official interest rate cannot be reduced. QE2 will produce three major effects, all ruinous. All debt is subject to coverage by new money, all to be eligible. Next comes hyper-inflation, as confidence in all things paper evaporates and a great tipping point is breached. The arrival of QE2 will produce three major effects. A) The reliance upon new money growth to monetize rapidly growing debt in the US financial system will undermine all things US$-related. The continued artificial support of the USTreasury Bonds will transfer risk to the USDollar. B) Whatever respect and prestige in the USFed will vanish quickly. The bravado of helicopter drops will seen hollow, amateurish, and invite mockery in the open among respected brain trust. C) The smartest people in the room will begin to declare that the current global monetary system is irreparably broken, and that past and future response, even if amplified, will be doomed to fail. We are on the doorstep of hyper-inflation.

4) The FDIC will soon launch what could grow into a vast securitization initiative. It is better described as the QE2 from the rear guard, not well noticed. Since broke, the FDIC has resorted to selling packaged credit assets from failed banks in order to raise cash, new securities with USGovt guarantees. Apparently, viable banks are harder to find for buying much of any assets. The FDIC two years ago served as an investment banker harlot for Wall Street acquisitions. Then it became a matchmaker, finally a liquidator, now a bond issuer. All the while the Deposit Insurance Fund runs more negative each month. Be sure that the Printing Pre$$ of monetization is behind the scheme, no longer well disguised, since the FDIC is so closely aligned with the other engineers of bond management within the USGovt (see Fannie Mae). The FDIC bond securities are more monetization.

5) Mortgage relief might be the destination for the next mammoth monetary expansion. The StLouis Fed was permitted to leak the story. James Bullard of the St Louis Fed wrote a breif white paper entitled “Seven Faces of The Peril” in he urged the USFed should immediately restart the purchase of USTreasurys if the deflation scenario takes deeper root, as in QE2. He correctly concludes the high risk of a Japanese-style deflationary outcome in the United States. Next came the speculation by both Morgan Stanley and Merrill Lynch in their concurrent release of analyst reports. They surmised that Fannie Mae and the Federal Housing Admin might be preparing an imminent launch of broad sweeping initiative. The proposed plan would feature an instant automatic refinance program for troubled mortgage loans. It would take millions of borrowers to current market rates overnight. It would stop short of reducing the loan balances of under-water mortgages, those suffering negative equity. In the process, $46 billion of consumer savings per year would be created, from basic reduction of monthly payments.

6) The loan modification pathways will possibly be expanded, maybe meaningfully. Operations have expanded whereby fraudulent home loans have been warehoused in Fannie Mae, under the USGovt roof and aegis for two years. Even the bankers might give pressure to revamp home loans in a skein of modification plans, in reaction to widespread non-payment from strategic default. A major challenge must be dealt with. They must avoid the close examination of massive mortgage bond fraud for at least $2 trillion on home loans. Such scrutiny might uncover a multi-$trillion Fannie Mae clearinghouse of fraud that links several major fraud schemes. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to the failed fat duo Fannie & Freddie, pledging an unlimited credit line. The sewage treatment plant will surely devise more clever projects to handle the toxic waste, since very large liquidity plumbing is promised.

7) QE2 will feature Fannie Mae rental homes, a new vibrant toxic business. Except a major blemish will build further, as defiant non-payment of mortgages will flourish, from strategic voluntary defaults. Look for Fannie Mae to gather in hundreds of thousands, even millions of broken mortgages. They will attempt to build a business subsidiary of the most queer type. An ulterior motive is to bail out big banks but not reveal doing so. A desperation is sinking in with USGovt proposals, perhaps in direct response to open fear of civil disobedience. Consider that 250 thousand Bank of America mortgage holders are paying nothing on self-driven strike actions. My forecast made in 2004 and 2005 was for the advent of a bizarre perverse Fannie Home Rental program. Now we see people forfeit title to their homes, lose their equity, but remain in the same home as renters making small monthly payments. The housing market would prevent the dumping of properties on an already bloated housing market. The Fannie Mae investors could have earned a dividend from rent payments, except that FNM stock issues were de-listed. Homeowners are increasingly not making monthly payments, daring the bank to foreclose on the property, challenging them to produce the property title. In many cases, the banks cannot produce the title, because the MERS database is a nightmare of spun spaghetti. The courts have ruled MERS has no legal standing in any foreclosure displacement of occupants. Rumors swirl with gathering strength and persistence. The USGovt might soon take over all failing home mortgages, and have their titles signed over to the USGovt. Then people would lease the properties to the people who occupy them according to pay scales, in collectivist fashion consistent with the presidential ideology.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting.   He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at  www.GoldenJackass.com. For personal questions about subscriptions, contact him at  JimWillieCB@aol.com

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Email: s2p3t4@sympatico.ca

Aug 24, 2010

1.   The gold uptrend line in place from $1156 broke last night.  Here’s a look at that break: Gold Uptrend Snapped

2.   There’s a small head and shoulders top pattern on the 60 minute chart which hints at the 1210 area, and 1210 is also support on the daily chart.  Here’s a second look.

3.   The USD has risen about 5% against the CAD in the time gold has fallen 1.5% from the $1240 area highs.  Yet, those of you who have Euros or Canadian dollars (aka the cbone) as your base currency have seen your gold rise in price!

4.   Some of you are starting to see some of your gold juniors “pop” upside on various announcements.  I maintain that much more such “golden popcorn” will be popping in September, as years of work by many of the juniors starts to come to fruition. I would argue that “Juniors Popping Corn” is going to be the number one gold theme of the next three months, regardless of the movement of the gold price.

5.     The 2^nd theme in focus now, is the “traditional fall seasonal strength in bullion”.  I would tend to agree is highly likely, but I would not be getting overly excited about such strength until it happens, and then you need to be a methodical seller of your trading positions into that strength.  Think: “Show me the money”, not “show me the bird in the bush”.

6.   You should have been a methodical buyer of those positions into weakness into 1156.

7.   Looking at the daily chart technicals, what I see there is $80 of price strength, and a massive add into that strength, of tens of thousands of short gold comex contracts by the banks.  Here’s a look at the Gold Liquidity Flows Report. Notice the highlighted comparisons of the commercials (mainly the banks) and the large fund speculators.  The funds are in blue and the commercial banks in yellow.

8.    What I like a lot of you are missing when looking at these reports is the fact that the huge commercial short position put on into 1266 has never been resolved.

9.   The consensus in the gold community appears to be that since gold only sold off from 1266 to 1156 on the last shorts add, and this one isn’t as big, any fall in the price of gold right now wouldn’t even match the $110 fall from 1266 to 1156.

10.        My response to that thinking is:  Maybe so, but I wouldn’t bet ten cents on the idea.  Just because all was AOK before for your accounts, does not make it all AOK again for your accounts now.  The reality is that huge selling took place, in terms of fund and gold community capitulation, in the 1200-1156 area.

11.        There’s a possibility that 1156 is the final low, but absolutely zero evidence that it is. My suggestion is that you don’t take the COT position too lightly, and keep an open mind as to whether 1156 is the final bottom or not.  Don’t let me come visit you a week from now and all I hear playing from your room is a broken record featuring Elvis Presley singing “I’m COT in a Trap, I can’t walk out, because I thought it was traditional that I make free money in the fall in the gold market”.

12. Most analysts look at the market as an investment.  I look at it as a war.  With the uptrend on gold now broken, and the latest price-chased positions put on by the overleveraged funds already underwater, any kind of gold-negative news could cause a massive sell off in the gold market, here and now.

13.        Here’s a closer look at the technicals for gold right now.

14.        The Gold Cascade Notice that I like to use a series of timeframes for the indicators.  A type of “cascade” is created as the shorter time frame series of a single indicators hint at coming rises or falls in price, and the move is usually well underway before the longer time frames for that same indicator confirm the action.

15.        The current situation shows a plethora of sell signals all over the “gold map”.  Sadly, most in the gold community bought nothing into 1156 as I screamed buy, and now as I’ve urged you to book profit into $80 of price strength, most are caught up in the “traditional fall rally” mantra, while a huge wave of potentially gold-negative news approaches, while the technical oscillators are overbought, and the uptrend line is broken.

16.        Could be press on to new highs above 1250 or even 1266 before this rally becomes a decline that puts fear into the gold community?  Absolutely, and as I sold into 1240 I had no idea that was a short term top any more than I knew 1156 was the bottom.  Focus on being a failed prophet, and a winner in market action.

17.        There are very few technicians that can use 60 minute (or shorter) time frame charts well.  Yesterday was example number one billion of why that is true, as the 60 min chart oscillators hinted at “buy signals”.  All the dreams of short term gains were dashed on the rocks of reality in the night as gold sold off anyways.   It’s critical that you are able to operate in the market like the commercial traders (aka “the banksters”) do, with the ability to layer in waves of buy and sell orders, assuming your latest buy will go underwater, as will the next one and the one after that. Here’s a look at the 60 minute chart for gold using SGOL-nyse as the proxy.

18.        What I want to draw your attention  to is the co-ordination of time frames.  When the daily chart is overbought, and you get a small sell-off that puts the 60 minute chart into buy mode, you need to be very careful about looking to far upside for your profit booking targets.  In reverse, if both the daily and the 60 minute charts are giving buy signals, you are using the 60 to tactically implement your buys, not to actually make the buy/sell decision itself, a subtle yet key point.

19.        The hysterical fear of being left out is the prime cause of price plopping, while the reality is very few investors ever make money consistently in the market.  By definition, that fact means the vast majority of price-plopped buys go underwater and stay there, for a long, long, long time. Yet, horrifically, crew after crew of price chasers buy their market lotto tickets hoping to win the “exception trumps the rule” lotto.

20.        On that note, huge numbers of investors from outside America have purchased US residential real estate, believing they have purchased a great bargain, as they did with Enron, Nortel, Fannie, Freddie, and Citigroup.  The performance results are highly likely to be the same, or worse, because there are liquidity issues in real estate, and carrying costs, that don’t exist in the stock market to the same extent.  If you look at the action of public investors (who I’ve termed Elmer Fudd), they typically chase price except when the bull markets end in major assets. That’s the one time they buy en masse on price weakness.  They rush in and buy the initial decline, sure they have some sort of “super bargain” on their hands.  The real estate market might not recover for several decades, and arguably the bear market there has only barely started.  The ancient bull market in bonds will die at some point, as Helicopter Ben moves from Quantitative Easing to gold revaluation, as the crisis intensifies.  Elmer Fudd has been told the economic crisis is over, when in fact it has barely started.  The markets crisis is 10 years old.  The economics crisis is a baby.  When the bond market is abandoned by the Fed, you could see a full blown panic in the real estate market.

21.        That panic could lead to limits on bank withdrawals.  All such action is ultra gold positive.  Higher interest rates as a response to high economic growth rates are gold negative.  Higher rates as a result of an implosion of the bond market are the ultimate gold positive, second only to all-out money printing and actual revaluation of the metal by the US Treasury and/or a massive coordinated central bank gold buy program.

22.        You have all heard the joke made when there’s bad weather outside and the forecaster gets it wrong.  “Look out your window, put away all the equipment, just look out the window and see the reality!”  It’s the same in the gold market.  When you look at the price chart and you can’t see any real decline on the chart, my question to you is, “why are you buying heavily when you can’t even see a decline?”  This mantra applies whether you are using a short or long term time frame.  For one trader a $50 move is huge, but for another it’s microscopic.

23.        When you look out your market window, you need to spend time thinking, “do I see any price rise here, because if so I better do some selling”.  The gold chart right now shows no significant price decline, so you need to wait till it does before ramping up your buys.  Obviously my pyramid generator does that for you and forces you into that winning discipline.  I would predict that by the end of this week, most of the “traditional buying season” for gold is forgotten and replaced with, ‘what’s wrong here, how LOW is this thing going, I’m burning!”  At that point you will be accelerating your buys,if it happens.

24.        If you don’t feel discomfort when you are buying in size, you are making a major error, and odds are 99% you will feel a great deal of discomfort after those size buys go underwater, as they are, here and now, for the “traditional buying season” gang.  The traditional buying season is better termed the “Traditional handoff from the funds and retail price chasers to the bankers right before gold takes off” season, and the question is:

25.        Are you prepared?

26.        Special Offer for Website Readers: Send me an Email to freereport4@bell.net and I’ll rush you my “Gimme the Gold Clay!” report, covering the very interesting Claymore Gold Bullion Trust that likely holds all the gold they claim to hold, trades at very modest prices, and features a mtk price/nav ratio that is extremely reasonable, making it a perfect choice for my pyramid generator, with now being an idea time prepare your buy points!  Thanks!

Thanks

st

Thank-you

Stewart Thomson

Graceland Updates

Risks, Disclaimers, Legal
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:

Are You Prepared?

The second is the tendency for a cycle to bottom only after a fake out earlier in the cycle.

I’ve been expecting a short daily cycle to balance out the extremely long cycle into the May flash crash (62 days trough to trough). But it doesn’t look like we are going to get one. Every cycle has either run late into the timing band or stretched long. So from here on out I won’t be looking for anymore short cycles (which probably guarantees the next one will be).

When the market starts to rally out of that cycle bottom we could see a pretty aggressive move as shorts panic and have to cover. I actually expect this will quickly drive the market above the 1130 resistance level. Then it will just be a question of when sentiment reaches bullish extremes as to whether the market can test the April highs. If we start to see large negative money flows (a sign institutional traders are exiting) prior to bettering the April high then there is a good chance the cyclical bull is on its last legs.
Dollar:
I’m going to spend a good bit of time today on the dollar because it is going to be the key to what I envision unfolding the next few months.

I’m going to start off with the largest 3 year cycle and then work backwards.

The last four major 3 year cycles have all run 3 to 3 1/2 years in length. The current cycle is 2 years and 6 months old. Now there is a chance the 3 year cycle could bottom this fall as the current intermediate cycle bottoms. However that cycle is due to bottom in November or early December. That would leave the 3 year cycle a bit short. For that reason I expect the current cycle to run at least one more intermediate cycle into the March – June time frame. This is a big reason why I think the C-wave in gold may have two legs up instead of just one.

Next let’s back down to the next smaller cycle – the yearly cycle.

A 50% retracement would take gold slightly below $1200. If you remember I was expecting smart money to push gold below the May pivot as the intermediate cycle bottomed last month. I explained at the time how big players routinely run stops to trigger heavy volume sell offs that allow them to take large positions into a very liquid environment. With the benefit of hindsight we know this is exactly what happened.

Now I don’t think gold will be dropping anywhere close to $1155 during this correction, but I do think there are probably plenty of stops to be run below the psychological $1200 level. So I think we can probably look for gold drop below that briefly as smart money again runs the stops in order to panic retail traders into puking up their shares. My suggestion would be for anyone looking to enter or add to positions to do so as gold breaks through $1200.

Let me remind everyone that gold is the single strongest trending market on the board today. It is the only asset still in a secular bull market with unimpaired fundamentals. I did my best last month to convince traders and investors to buy the intermediate cycle low. I suspect many were unable to do so. Those intermediate cycle lows are the single best buying opportunities one gets in bull markets and they only come around once every 5-6 months.

The approaching smaller daily cycle low will be the next best opportunity to get long or add to positions in the one remaining secular bull market. If you missed the last one in July I suggest you not make the same mistake twice.

But as I’ve been saying for a long time it simply isn’t possible to print prosperity. I’ll tell you what else is impossible to control – where the liquidity lands.

Ben would love for all that free money to create jobs, but as we know that just ain’t gonna happen. The next best thing would be for all that liquidity to levitate the stock market. And I think it will to some extent, but there are already problems starting to surface with this plan. Not surprisingly they are the same problems that popped up in `08 as Ben tried to stop the real estate bubble and credit markets from collapsing. I’m sure you’ve noticed the problem by now. That’s right, liquidity is leaking out of the stock market and flowing into the commodity markets.

It’s readily apparent in the above chart that stocks are already struggling as more and more liquidity leaks into commodities. The CRB however is having no trouble what-so-ever responding to the Fed’s printing press. It is rising in lock step with the declining dollar. The fact that the fundamentals are impaired in most commodities just goes to show how much liquidity the Fed is actually dumping on the world.

I expect this pattern to continue and accelerate as the dollar moves into the yearly cycle low. I have no doubt we will continue to see a weaker and weaker response from the stock market leading to more and more panic printing by the Fed causing commodities prices to rise and rise.

Commodities are already trying to tell Ben to shut down the presses. As this continues they will soon be screaming for the Fed to shut off the money spigot. I really don’t expect Ben to hear though. He was deaf to what his monetary policy caused in `08 ($147 oil and the collapse of the economy) and I expect he will not heed the warning signs this time either. Which, of course, just means he will get the same result as last time. Eventually his monetary policy will spike commodity prices, especially oil and probably food, through the roof which will destroy the economy all over again.

Gold:
I’ve been looking for a swing high to possibly mark the top of the current daily cycle. Gold formed a swing on Friday that I think probably marked a short term top. If gold is now on its way down into the daily cycle low then I tend to think it will probably bottom along with the stock market sometime next week or early the following week.