Gold Stocks vs Dow: The No BrainerI'm glad to see some more gold analysts speaking about gold revaluation. Unfortunately, most of them speak of revaluation as a solution to the crisis. That idea qualifies as… error of the century.
There is no solution to the crisis, because of the size of the OTC derivative debt bomb. There is only a coming end to the crisis, and that end involves the impoverishment of creditors and the public, via gold revaluation and/or all-out money printing.
Most gold investors need to understand the difference between a personal desire to get richer (greed) and "helping people". You don't help people by revaluing gold thousands of dollars an ounce higher in the throngs of a quadrillion dollar OTC derivatives debt crisis. Drastic revaluation of gold when the dollar is weak impoverishes those without gold.
I've told investors since the late 1990's that gold revaluation is a bankster scheme to transfer wealth from the public to themselves, and it would deployed at staggeringly high prices. If employed when debt is low and the economy is booming, a gold standard locks in prosperity. If you want a real gold standard, one to help people, fight for it when gold is low against the dollar, not high.
Simply put, any coming gold revaluation is a poverty-lock. I want gold's price higher, so I get richer, and my subscribers get richer. End of story.
I know full well what the consequences of an astronomically high gold price are for the average person; poverty, and probably the breadline. Know your greed, and manage it professionally.
Click here now to view the gold head and shoulders top pattern. After the first possible right shoulder formed on Friday (RS on the chart), investors became afraid. Some liquidated, as they looked at gold as "overbought".
I want you to understand that professionals use oscillators like RSI and MACD to decide how much capital to place at a given point of price weakness, but not to decide whether to buy or not. The "whether to buy" decision is determined by the amount of price weakness and horizontal support and resistance (HSR) levels.
Gold melted almost $100 from $1815 to $1725, but few bought that weakness with any capital at all, because of an obsession with technical oscillators. The second possible right shoulder has warped the h&s pattern, and there is now a strong possibility that the pattern has failed and price is about to blast towards $1900 or higher. For those who bought nothing into $1725, there is now a possibility that you are about to miss out on nearly $200 of price appreciation from $1725.
When you buy something, you want to have the odds of success on your side. In the case of gold stocks, you have a massively higher gold price in play now. In the case of the Dow, what you have is an institutional money manager obsession with higher oil prices, as fuel to move that market higher. The theory is that a rising oil price indicates economic expansion, and so the general stock market is a buy. I would argue that borders on insanity, but it is currently how institutions are flowing liquidity, and it is indeed moving the market in both directions, relative to the oil price.
I think a major disconnection of the Dow from oil is near at hand, and when it happens the current crew of stock market "bargain hunters" are going to get a real taste of just what constitutes a bargain, and what constitutes a crazed price plop into an overpriced stock market that sits on the outskirts of crash season.
If gold goes parabolic, oil is likely to follow, while the stock market, bonds, and the dollar are likely to at least temporarily enter into a sort of triple death spiral. Don't think that an endlessly higher oil price is positive for the stock market, or you could find yourself part of that death spiral.
September and October are "crash season" for the stock market. Most of the investors who tried to bottom call the stock market recently didn't buy into the lows of this decline to the 10,600 area. They bought higher than where price is now, and are already disappointed, but hoping to get out at break-even or at a small profit. I'm less sure about their destiny.
Unfortunately, volume is tanking as price is rallying. Notice the five red HSR lines on the chart, with the first one only about 500 Dow points above where we are now. There is horrific overhead resistance.
If there is a decision to be made between buying the Dow in crash season, based on an ever-rising oil price indicating all is well, versus buying gold stocks fuelled by the skyrocketing price of the commodity they produce, only a bonehead goes with the Dow.
Click here now to view the Dow monthly chart. Most technicians use only a single and popular time series for each oscillator, like the 12,26,9 series for MACD. So, they currently think there is no "sell signal" on the Dow monthly chart. I use leading time frame oscillators. The oscillators on the Dow monthly chart look like a barrel going over Niagara Falls, and my only question to you is, are you in the barrel?
Buying gold stocks here and now on any and all weakness, instead of the Dow, is one of the few "no brainers" that occur in the market on the rarest of occasions. I don't buy into the "it's 2008 again" story. Nor do I buy the "if the Dow falls, gold stocks will fall harder!" story.
This is a new stage of the crisis, and it is the stage of gold stock price appreciation. The only question is, are you onside? Gold stocks could probably withstand a $400 an ounce drop in the price of gold, with only limited damage to the stocks themselves, at this point in time. The absolute level of the gold price is slowly putting a floor under possible damage to the stocks.
All technical signs on the GDX monthly chart point to a target of 100. Click here now to view. Notice that the monthly chart oscillators gave what I term "mild sell signals", but the leading series are already looping up into buy signals! That chart is annotated all in blue for a reason, and the reason is that it looks fantastic.
Maybe the Dow monthly chart oscillators loop up into buy signals, or maybe not. I say…. Who cares! Focus on gold stocks, not the Dow. When the average Dow stock can sell their underlying product at massively higher prices compared to gold stocks, then get serious about buying the Dow. That is not the case today.
Click here now to view the GDX weekly chart. Note the massive up volume bar, one that I've termed, "epic". The oscillators are in a sort of mid-ships position that often occurs when price is set to surge higher, and I think it could happen even if the gold price itself wallows here. ARE YOU PREPARED FOR A ROCKET BLAST UPWARD?!
Some readers thought that because I speak of the "gold punisher" lording over everything in this crisis, that I am knocking silver or gold stocks. Wrong. It's critical to understand the magnitude of the crisis and to "know your place" within it. All commodities will eventually super-inflate or even hyper-inflate, if the central banks accelerate gold buy programs and money printing.
Unfortunately, a lot of investors didn't understand the size of the OTC derivatives debt bomb, so they thought gold stocks and silver would skyrocket soon after the crisis started. That was a mistake. There has been no global reflation of the world's economy, but I think now it is very near. There have only been sporadic "fixes" of individual debt bombs, like Lehman. The rising gold price is what will reflate everything, but that takes time, and institutional money managers are not going to load up on silver and gold stocks until that happens.
Forget about the pipedream of the public buying gold stocks to send them vertical. The public is likely going to the breadline, and they've just finished selling their gold to the pawnshop man, for a bag of peanuts and a roll of toilet paper. Institutional money managers are going to pump your gold stocks upside in a way that seems "beyond impossible" now. Don't waste time now worrying about gold stocks, in hopes of avoiding some "pre-parabola hit" on them. Gold stocks are what this stage of the crisis is all about, and the only question is, are you onside?
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Written between 4am-7am. 5-6 issues per week. Emailed at aprox 9am daily.
Stewart Thomson / 1276 Lakeview Drive / Oakville, Ontario L6H 2M8 Canada
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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