Dear Friends,

When it comes to the particular stocks which I chart out for you from time to time, the reason I include some and exclude others is either because I am asked by some of you in emails to do so or because those particular stocks are leading the sector and are some of the better performers. I do not trade stocks for a living – I trade commodity futures so I am not in the business of either promoting or dissing various stocks. The analysis I provide on the charts is designed to help teach you how to do this for your own holdings with the sincere hope that it will make you more successful in your investing or trading endeavors.

I provide what I feel is an honest assessment of how the stock is doing. If a stock is not performing all that well, I will not rave and fawn over it merely because someone happens to own it and might be offended. I am sorry but the performance of a stock is what it is and I have no control over that. If you ask me for an honest assessment, you are going to get one! If you want a biased analysis, may I suggest a subscription based newsletter where unfortunately, many already own the stock before they recommend you buy the thing.

Also, please keep in mind that I only have so many hours in one day and do actually have a life so there are times when I simply cannot get to all the email requests that I receive or find the time to analyze some of the various mining equities that are out there. I will do my best but I ask you to forbear with me as unless I give up eating and sleeping, I could find myself glued to my computer permanently trying to accommodate all the requests. Remember I actually trade for a living and that requires a tremendous amount of time and research.

Sincerely,
Dan

 

 

Click here for this week's action in Barrick Gold, GoldCorp, Newmont, Golden Star Resources, Royal Gold, Yamana Gold, El Dorado Gold and Seabridge Gold, with commentary from Trader Dan Norcini

 

Click here for today's Commitment Of Traders Action in Gold, Silver, the US Dollar Index, the Euro and the Broad Dollar Index with commentary from Trader Dan Norcini

 

 

Dear Friends,

A serious event occurred today. This event was the very public international recognition of more off balance sheet so called “assets” revealed as having little, if any, value.

This event is arguably the most serious financial upset ever. If you have not protected yourself, it is getting very late - maybe too late.

Your best hope is that this event is so complex that the herd of self anointed experts has no clue what that vehicle is, how large it is and therefore the profound meaning it has.

Gold, serious junior gold shares (the only seriously underpriced and therefore real value in equities) and non-dollar short term federal currency instruments are your sanctuary. You better get there, and get there FAST!

 

Click here for the criteria you should consider when selecting junior gold share situations.

 

The meaning of this is not only are Freddie and Fannie’s troubles much costlier than realized, but now there is an entirely new definition of market-less financial entities with off balance sheet assets that undermine primarily the US and now international banking systems. Conduit mortgage OTC derivatives will have to be marked down now that the sun is shining on them.

The U.S. mortgage industry transformed itself in a way that has opened dangerous SIV sub prime real estate conduits to global capital markets.

A conduit loan is priced by swaps and swap spreads, thereby becoming a package of various OTC derivatives generally derived from a formula that would make Einstein look like a kindergarten mathematician.

By turning mortgages into securities, lenders created vast distances between homeowners and their mortgage holders, who can be anywhere in the world such as Australia.

US banks have written down $450 billion in bad housing loans. The revelation from NAB means that they will now certainly need to take provisions to $1,000 billion. Write-downs of $1,300 billion and perhaps even more are in the cards.

That guarantees the USDX at .6200 and more likely at .5200.

That guarantees gold to reach at least $1650 much sooner than I anticipated.

This strongly suggests that my estimate of $1650 is significantly below the price of gold coming soon.

This opens the probability that a modernized and revitalized Federal Reserve Gold certificate ratio tied to the M3 will evolve into the monetary system.

The greatest economic crime ever committed is OTC derivatives. Those that proffered these will have killed more people than most wars.

This is it and it is NOW!

Respectfully yours,
Jim Sinclair

 

 

Jim Sinclair’s Commentary

CIGA Danny speaks the TRUTH

Jim,

The "solution" that Paulson and the gang came up with was to INCREASE the leverage in this tremendous, rickety, over-leveraged, illiquid housing market, with the taxpayer funding in some cases double and triple subsidies to the a-holes who got everyone into this mess.

CIGA Danny

 

 

Jim Sinclair’s Commentary

We all have bad days. That is the price we pay for being human. I wanted to share to following with you.

Jim,

Dan's treatise yesterday should have been a VERY clear and sobering piece of advice. I sent it round for sure!

• I am a relatively new investor and gold follower and if I've learnt anything it is:
  Read lots
• Think
• Take a LONG term view (as Dan was saying)
• Have patience and I guess balls too, but if you ARE confident in your take on things, forget about the balls and focus on the patience! :-)

How someone who reads broadly (yourselves, 321Gold, Casey Research, etc.) can't "see" as Jim cries out, is beyond me. But there you are.

THANK YOU FOR CHARGING AHEAD IN SPITE OF SUCH "NOISE"!!!!

Have a golden day and weekend!

Sincerely,
CIGA Israel L

 

 

Dear Jim (and all at JSMineset),

Whilst I am constantly wary of adding to the mailbox of busy professionals such as yourself, I do sometimes feel that an email to express thanks is worthwhile. Otherwise there is a danger that those who go well beyond the call of duty to assist others may feel unappreciated or taken for granted.

Having read about the avalanche of "nastygrams" dispatched recently, I think that it is vital to confirm that the idiots who send these are not representative of the whole (and nor, I hope, of the majority). I am a long-term investor rather than a nimble trader like yourself. Like many, my portfolio has made less-than-comfortable viewing over the last few sessions, but I accept that violent 'down days' come with the territory in PM's - particularly during the "Summer Doldrums." There is only one person I look to blame when there is a 'fool/amateur' tag to be awarded, and that is myself! (I'm building quite a collection!). There will be no 'nastygrams' from me. I am happy to accept at least some of the credit when the markets cooperate, and I am realistic enough to take it on the chin myself (and not lash out at others) when the portfolio takes a hit. That is the only way to be.

Fortunately, I share the conviction of you all at JSMineset that plenty more gold-positive days lie ahead of us in the future. So my toys are staying firmly in the pram. But it appalls and frustrates me when I read about these losers who bombard you and Dan with bile every time there is a normal pre options-expiry bear raid. There must be days when youfeel like packing up and letting the 'CIGA Community' fend for themselves. I wouldn't blame you if you did, but I for one would be lost without your daily reports. They offer fantastic insights available nowhere else and I consider them a compelling read every session. How do you find the time? And that is why I believe it is crucial to risk adding to your inbox burden at this time to reassure you that there are people out here who genuinely APPRECIATE what you are doing.

I have rambled on a bit, but the point is this:
THANK YOU Dan, Jim, Monty, Editor Dan and all. Those who (greatly) appreciate your efforts are still (silently) out here. Unfortunately, it seems that the brittle, immature types make their opinions known to you much more than the rest of us.

ALL THE BEST,
CIGA LIAM Mc
Manchester, U.K.

 

 

Jim Sinclair’s Commentary

Yes, Chris is right. This is something you must watch.

Jim,

We could laugh at it... if it was not so serious.

The following link is to a funny video on the sub-prime business, its ridiculous business model and the consequences.

Click here to view the video

Regards,
CIGA Christopher

 

 

Dear Jim,

Search through your site and find the dates of you complaining about nasty emails. They are all very near bottoms.

Why should this time be any different?

Regards
CIGA Alex

 

 

Dear Jim,

This helps eliminate the noise and take out the spikes.

I presume the dollar is in a controlled decline for now.

CIGA Alex

Click chart to enlarge in PDF format

Click chart to enlarge today’s 12 hour action in gold in PDF format as of 12:30 pm CDT with commentary from Trader Dan Norcini.

Dear Friends,

I exhausted all of my 9 ping pong ball ammunitions on Mr. Giro, the Bloomberg gold expert who presented central bank selling as if it was sold into the open market.

Now this is the testimony of an expert that is so goofy he is an embarrassment to even the other talking heads. Mr. Giro smiled widely as he belt out more BS that was quoted as “expert testimony.”

Apparently he has never heard of the gold starved Asian central banks and their sovereign funds eager to offload dollars. There is no better way for Asia to build its gold position than through buying it from Western Central banks and stuffing the west with just what they need: more depreciating promises to pay nothing much - dollars.

 

 

Jim Sinclair’s Commentary

Note that the bomb was set off late at night and all the students were of course out. This was a demonstration of what might happen if Pakistan was to move towards Western values which of course they will not/.

Pakistan: Bomb destroys girls' school
By Reza Sayah
CNN

ISLAMABAD, Pakistan (CNN) -- Bombings by militants have destroyed a government-run girls' high school and several shops in the Swat Valley of northern Pakistan, police said Friday.

Militants detonated an improvised explosive device at the school around 2am, destroying 10 classrooms and two offices, Officer Bashir Khan of the Kabal police station said.

The blast also damaged nearby homes. No one was hurt, Khan said, and no one claimed responsibility.

The school was in the village of Tatano Bandai in Pakistan's Swat Valley, about 93 miles (150 kilometers) north of Peshawar in the North-West Frontier Province.

Around the same time as the school bombing, militants blew up several shops, including barber shops and cell phone stores, in the Charbagh area of the Swat Valley, police in the region told CNN.

More…

 

 

Jim Sinclair’s Commentary

Talking heads see improvement in housing. Now there is a world class hallucination.

Foreclosure filings up 120%
220,000 homes were lost to bank repossessions in the second quarter, and the annual forecast for 2008 will have to be revised upward.

NEW YORK (CNNMoney.com) -- As foreclosures continue to soar, 220,000 homes were lost to bank repossessions in the second quarter, according to a housing market report Friday issued by RealtyTrac.

That's nearly triple the number from the same period in 2007.

A total of 739,714 foreclosure filings were recorded during that three-month period, up 14% from the first quarter, and 121% from the same period in 2007. That means that one of every 171 U.S. households received a filing, which include notices of default, auction sale notices and bank repossessions.

"Most areas of the country are seeing at least some increase in foreclosure activity," said James Saccadic, CEO of RealtyTrac, an online marketer of foreclosed homes. "Forty-eight of 50 states and 95 out of the nation's 100 largest metro areas experienced year-over-year increases in foreclosure activity."

Because foreclosure filings are growing so quickly, RealtyTrac will have to reevaluate its foreclosure forecast for the year, according to spokesman Rick Sharga.

More…

 

 

Jim Sinclair’s Commentary

The silence surrounding this important event is mindboggling.

NAB will shock Wall Street
The Business Spectator

The National Australia Bank's decision to write off 90 per cent of its US conduit loans will have dramatic repercussions around the world. Wall Street will be deeply shocked when they understand the repercussions of what NAB has done. It is clear global banks have nowhere near provided for their exposures to US housing loans which in the words of John Stewart are experiencing a “meltdown”.

We are now way beyond sub-prime. NAB says that it is suffering a 55 per cent loss on American housing loans – an event that has never happened in the history of a developed country in recent memory. This is an unprecedented event and means that the cost of bailing out the US financial system is now far beyond the highest estimates. A US recession is now locked in, but more alarmingly, 55 per cent loan losses point to the possibility of a depression.

It means the cost of bailing out housing exposures to the two mortgage insurers will be so great that it will leave no room to bail out anything else and there are several US banks that are now in big trouble. NAB says that the dislocation in the residential market is separate from the corporate market, but the flow on is inevitable.

While global banks have been writing down their balance sheet assets, few have tackled their conduit exposures which are off balance sheet but to which they are ultimately liable.

More…

 

 

Jim Sinclair’s Commentary

Truth is no longer honored but instead is severely punished while complete fabrication of balance sheets are supported and rewarded. Now there is a formula for a self-destructing society. A clear example was reported by Reuters today.

U.S. SEC, FASB urged to delay accounting change
Fri Jul 25, 2008 1:10pm EDT

WASHINGTON, July 25 (Reuters) - A senior U.S. lawmaker urged securities regulators to slow down a pending accounting change that could force banks to bring trillions of dollars back on their balance sheets, according to a letter obtained by Reuters on Friday.

Republican Rep. Spencer Bachus of Alabama said in the letter, dated July 22, that the accounting change may have serious unintended consequences.

"Changes to securitization accounting could have a dramatic impact on the economy, the capital markets and consumers seeking credit," he said in the letter to the chairmen of the U.S. Securities and Exchange Commission and the accounting rule maker, the Financial Accounting Standards Board.

Bachus said January 1, 2010 would be a more realistic deadline than this year for finalizing accounting changes as it would allow "stakeholders" to have the time to debate alternatives and consequences.

FASB is working on a proposal to eliminate certain off-balance sheet entities called qualified special purpose entities (QSPEs) used to pool debt such as mortgages and student loans.

More…

 

 

Dear CIGAs,

“US CFTC CHARGES DEFENDANTS WITH 'BANGING THE CLOSING PERIOD' OF OIL MARKET TRADE”

Are you totally blind?

Today you read a post from Trader Dan concerning chart painting, but you still continue to push the panic button, letting yourself be bamboozled by those short the junior gold shares.

This day’s action has all the markings of the MANIPULATION resident in the commodity markets.

This gold reaction has no legs. The third try at $1000 stands right in front of us.

Even the most gullible market on earth, the US equity market, has barfed out the spin on Fannie and Freddie costing only $25 billion. The suggestion that it may cost nothing at all is laughable.

Even the Spinmeisters are running out of gas.

The housing market seems as if foreclosures will only end when every house sold in the past three years is foreclosed on.

The job market is unwinding.

Every pro knows the recent bank earnings are accounting legerdemain. All reports on bank earnings are far worse than the figures show.

The greatest test of the credit default market will be the bonds of GM, GMAC, Ford and Ford Credit.

The bottom is starting to fall out of credit card payments.

Today has all the earmarks of a Hail Mary play in the juniors hoping to break the back of investors.

Look at the HUI which shows you the “BANGING THE CLOSING PERIOD” of the junior golds. The cheapest gold entities are the bombed out juniors that are real companies not starved of operating finances with viable properties. They will appreciate 1000%.

Before you break out your razorblade kit and head for the bath look at the HUI and know gold is going above $1000 very soon.

If you do not see what is happening then you are totally BLIND to how you are being bamboozled!

 

Please read the following before you weep:

I have given you my phone number in order to help you in difficult times.

In respect for what I and my dear my friends are trying to do for you, please READ this site FIRST and make efforts on your own part to find answers. Those that inundated Trader Dan after reading my email to you last evening are either downright lazy or just mean.

Those calling me tonight in a total panic over juniors should simply NOT be in any investment ever, especially gold.

Those sitting in their bathtubs with their razor blades at the ready don't call me in order to vent. Instead bail out at tomorrow's opening, sooner if possible, and forget all of this. Buy Fannie's and Freddie's old debt, put your money in Indymac, WaMu and Wachovia via long term dollar CDs and be happy. Maybe you would like some of those cheap financials. I hear Bloomberg talking heads saying financials are really good to buy now that the debt crisis is behind us.

Those calling me tonight without the patience to read these postings must have an agenda of driving me to drink. Each caller looks only at their favorite junior, declaring it different from all other sector participants while quoting what Gartman is doing.

When have we failed to address all the criteria of any given market day here on the site? By 9pm EST you have the majority of what occurred that day readily available for you to read. On particularly significant market days, Trader Dan and Monty Guild are quick to share their perspective on the major stories of the day.

For the rest of this evening I simply cannot answer any more "Negative Nelly" calls. This time you have successfully taken me over the top.

 

Print at least two copies of the following points in at least 32pt font. Post one copy above your computer monitor and the other by your phone:

• Gold is going to $1200 in 2008.
• Gold is going to $1650 on or before January 14th, 2011.
• The US dollar is going to USDX .5200
• Gold is getting ready for its third attempt at $1000.
• The so called dollar rally is a total joke.
• The junior gold shares sector are where the shorts are the greatest and the bargains the best with good companies looking at 1000% gains from today's lows.

 

 

Dear CIGAs,

We all know the Fannie and Freddie bailouts will be over $500 billion. They have $5 trillion of paper and loans and if only 1% is bad, that is $50 billion. In our opinion, a very large percentage of their $5 trillion of paper is suspect. According a to a research firm that picked apart the Fannie Mae financial reports at the end of 2007, they estimate that interest only, Alt A and sub prime equal about 25% of Fannie’s loans. If we assume that Freddie Mac is similar, (historically their portfolios have looked somewhat similar). How can it be less than 10% bad paper?

If the US government needs to bail out $500 billion they will have to create very large money supply growth. Politicians will print money to do the bailout; they will not raise taxes by a huge percentage on the middle class which is what would be required to pay for this. In addition, other bailouts and loans to Investment banks and commercial banks mean that the Treasury will have the printing presses cranked up to high for the next few years.

With the monetary base jumping as a result of the money supply expansion, how do we avoid inflation?

The only way to avoid inflation is if we get an accidental deflation (which will only occur if the inflationary pumping is met by a huge shrinkage of the accelerator and multiplier effects). In other words, this means everyone would have to take their money out of the bank and put it under their mattress, all while loans were not made worldwide. Since the US makes up about 25% of the global GDP and Europe is another 25%, the rest of the world or 50% from India, China, Russia, Brazil, the Middle East and elsewhere will have to keep growing and lending like they are.

We see the odds as strongly favoring inflationary tendencies in the world continuing for the next couple of years. Sure there can appear to be a temporary decline in inflation as you lap the one year ago big increases or if you cook the books on your inflation accounting, but any honest reporter will see inflation pressures continuing. This is bullish for gold and food prices and we continue to believe that they will rise longer term. We don’t really know how long it will take the Johnny-come-lately speculators in commodities to finish dumping their positions and take their losses, but at some time China, India, Brazil and other big commodities users will come back in and start to purchase commodities that they need to continue their rapid growth, which by the way is continuing. At that time, gold and food prices will once again move up dynamically. We are just watching and waiting. Sure it is painful but no one ever told us that making money investing was easy. That is why only those with foresight and a strong stomach survive.

Respectfully yours,
Monty Guild
www.GuildInvestment.com

 

 

Dear CIGAs,

The following is a direct effect of non-US financing of US bubbles. Now the question is will non US entities be willing to finance the bailout hangover?

Click chart to enlarge in PDF format

Series: FDHBFIN, Federal Debt Held by Foreign & International Investors

Jim Sinclair’s Commentary

Do not jump to the Pollyanna approach that compares the financial if, ands or maybes to the Resurrection Trust during the Savings and Loans Crisis.

The problem is that the forms of assets are not clear cut mortgages unencumbered by OTC derivatives as was the case during the S&L crisis. Freddie and Fannie assets are convoluted items that took consultants more than a year to determine anything close to worth, and even still the values were computer simulated. This type of asset just might not recover ever if the counterparty or Fannie and Freddie fail to perform on the specific performance arrangements.

Even if these assets were straight forward, the solution to them recovering still would not be. You would need a significant and intact long term housing market improvement to bring value back to the worth assumed at origination.

To allow an organization, be it a bank or Fannie and Freddie, to continue to operate via financial perceptive camouflage only makes the problems worse over time.

An inviting conclusion is all plans now in place or to be put in place are designed with a hope and prayer that they last 180 days. After that who as a planner really cares?

U.S. lawmakers strike deal on housing rescue package
Wednesday, July 23, 2008

WASHINGTON: A major rescue package for the U.S. housing market is scheduled to come to a vote in the House of Representatives on Wednesday, after lawmakers agreed on the final language late on Tuesday.

Designed to bolster Fannie Mae and Freddie Mac, the biggest U.S. mortgage companies, a provision drafted by the Bush administration was added to a broader housing bill that has been in the works for months.

The overall measure now has wide, bipartisan support in both the House and the Senate, said Representative Barney Frank, Democrat of Massachusetts, the chief architect of the legislation.

The added provision, proposed by Treasury Secretary Henry Paulson Jr., would give Fannie Mae and Freddie Mac access to government capital in the form of loans or equity purchases.

The stock prices of both Fannie and Freddie have seesawed wildly in recent days on investor concern about whether the two government-sponsored enterprises, or GSE's, will be able to ride out the worst U.S. housing market slump in decades.

More…

 

 

Jim Sinclair’s Commentary

CIGA JB reminds me of the prices I paid when Barbara wore her Poodle skirt and I was a first class nerd.

Woolworth Menu -- Circa Late 1950's

If any of you have doubt about what we kids paid for a coke and a sandwich at Woolworth in the 1950's, here's proof of the era we lived in. It was a GREAT ERA to live as a teenager!

Click image to enlarge in PDF format

Click chart to enlarge today’s 12 hour action in gold in PDF format as of 12:30 pm CDT with commentary from Trader Dan Norcini.

Dear Friends;

The following is a series of headline alerts and a stories that came down my wire this AM. The reason I have included them is to reinforce what we have been saying about “CHART PAINTING”. You would be a bit surprised to learn that I receive emails from people out there who categorically deny such a thing is possible or that it even occurs in the US markets. They condescendingly assert that our claims about the tactics of the short sellers, both in the Comex gold arena and in the stocks, is merely a case of sour grapes from a frustrated bull. That is naïve at best and just plain ignorant at worst.

While this story deals with the oil market, the tactics employed are identical and reasons behind them are the same in all cases. Why is that? Because today’s markets are dominated by technicians who pride themselves on having no fundamental view whenever they approach a market but claim that all that is necessary to make money is a knowledge of technical analysis. Some of them actually go so far as to boast about their ignorance of the markets that they trade and revel in the fact that they could care less!

We have maintained that those who have no fundamental view are rudderless ships on the ocean of the trading floors. They can be easily blown about by every wind of price behavior. When prices move lower during a price retracement in a bull market, they become morosely bearish. When prices move higher, they are wildly bullish buying blindly into upside strength. Price action alone dictates what they believe! Since this is now the vast majority of traders/investors, it takes little imagination to understand why chart painting on the close is so important to market manipulation schemes.

It is a fact that the closing price is the most important price in any commodity or stock for that day’ session as nearly every single technical price indicator or oscillator uses the closing price in its calculations. Move that strongly in one direction or another, push it as far as possible off the session highs if you are attempting to force price downwards, and all of the technical analysis programs that millions of investors are using will register your efforts. The result is that those software programs then do your work for you as they HERD the INVESTING PUBLIC in the direction you wish them to go.

Manipulation such as is charged above, “banging the closing period”, has ONE PURPOSE in mind – to move the closing price in the direction that the perpetrators desire so as to AFFECT THE MAXIMUM technical damage or effect to a market and to psychologically devastate those on the other sides of the trade.

Now do you see why it is necessary when trading gold to understand the tactics of our trading enemies and to also get a grip on your emotions when trading as well as having a firm fundamental view? Once you understand how the game is played you can also spot the tipoffs that alert you to their activities and protect yourselves accordingly. You can also profit accordingly by using the inevitable lemming like response to your advantage.

Dan

 

REUTERS U.S. CFTC CHARGES OPTIVER HOLDING BV WITH NYMEX OIL MARKET MANIPULATION DURING MARCH 2007

REUTERS U.S. CFTC CHARGES DEFENDANTS WITH 'BANGING THE CLOSING PERIOD' OF OIL MARKET TRADE

REUTERS U.S. CFTC CHARGES 2 OPTIVER SUBSIDIARIES, 3 EMPLOYEES IN OIL MARKET MANIPULATION CASE

REUTERS U.S. CFTC ALLEGES DEFENDANTS MADE ABOUT $1 MLN FROM OIL MARKET MANIPULATION

REUTERS U.S. CFTC SAYS STILL HAS 'DOZENS AND DOZENS' OF ENERGY CASES UNDER INVESTIGATION

 

REUTERS UPDATE 1-CFTC charges Optiver with oil-market manipulation
By Timothy Gardner and Tom Doggett

WASHINGTON (Reuters) - The Commodity Futures Trading Commission on Thursday charged global trading fund Optiver Holding BV with manipulating the NYMEX oil market in March 2007.

The complaint charged that three employees of the Netherlands-based fund made about $1 million through manipulation of crude oil, gasoline and heating oil futures on the New York Mercantile Exchange (NMX.N)

The agency's enforcement action came a day before the Senate was scheduled to have a major vote on legislation to rein in excessive energy speculation and impose new regulations on traders that the CFTC would have to enforce.

The CFTC's acting enforcement director, Stephen Obie, denied that the announcement of the case was timed to influence the vote on the bill. "This was not a politically motivated case," he said.

More…

 

 

Dear Friends;
 
Apparently some of our readers are confused as to the differences between investing in gold shares and trading in gold shares. Judging by some of the nasty grams I have received from a few of you, I thought it might be worthwhile to explain the differences in the two as to the manner in which they approach trading/investing.
 
Investors generally have a longer term view of the market, attempt to define a macroeconomic trend and position themselves properly for that trend as it develops and ride it until the trend is exhausted and the macroeconomic picture which gave rise to that trend is no longer valid. They do not try to trade in and out of stocks daily or weekly for that matter but look to add to their holdings only on price corrections as they slowly build a sizeable position to take advantage of the move that their macroeconomic view informs them is coming.
 
Traders are an entirely different lot and approach the markets much differently. Their goal is more one of market timing attempting to catch short term price movements both up and down and profit as they take advantage of those moves. They will move in and out of the market as frequently as they prefer. They are much more active in managing their holdings compared to investors who are generally more passive.
 
That being said, some of you seem angry with me because I counseled abandoning a trade that goes bad. The notion is that I am now advising selling out on weakness. Unfortunately, those who erroneously think this way do not understand that trading (note – I did not say INVESTING in ) gold shares involves buying them on subsequent price weakness AFTER they form a short term technical buy signal on the charts and SELLING them into a rally after they form a short term technical sell signal on the charts.
 
Sometimes a TRADE can move against you in which case, as a professional, I will get out of the trade with a small loss and immediately look to move back in after the market moves lower (assuming I am buying) after which it then provides another short term buy signal. I will then take that new trade again expecting it to move in my favor. If it does not, and the market violates a technical support level, I do not argue with the market, but get out with another small loss all the while anticipating yet another entry point at another level at which I get another new buy signal. If the trade then moves in my favor, I will ride it until I feel the current move up runs out of steam at which point I will exit the trade.
 
The entire point in this exercise is to KEEP MY LOSSES SMALL. Each and every trade I put on has a price point at which I know the trade is either good or bad. Trading discipline then informs me to either exit or maintain or even add to the position. Arguing with a market is a technique employed by losers who inevitably end up busted and broke, just another piece of road kill on the floor of the pit.
 
By moving into a market as soon as I get a technical buy signal, I am in at a point with a DEFINITE set risk which I define as small. The longer you wait to enter a trade, the more your risk increases because the market has moved further away from that price level at which you know the trade has soured. That is the key to successful trading. Some of you need to lose a lot more money before you learn to RESPECT the markets. Only fools and novices sit there and argue with the market over a losing position all the while their trading capital dwindles into oblivion. You must first learn how to keep your losses small if you are going to survive as a trader. If you can do that, the profits will take care of themselves.
 
Secondly, some of you are also confused over what it means to “BUY a FISHING LINE” or to “SELL A RHINO HORN”. Neither Jim nor I have ever counseled buying willy-nilly in some blind fashion into a falling market just because you think prices have fallen far enough. How do you know that they have? I can emphasize strongly enough that prices can always fall much further than you ever imagine is possible. As a matter of fact, they can fall far enough that they can wipe out the entirety of your trading capital. Again, learn to respect the market.
 
Nowadays there is a new phenomenon that did not exist 20 years ago in the same quantity or form that it does today – that phenomenon is the hedge fund.
 
I have repeatedly tried to inform our readers that hedge funds are almost exclusively technicians in their approach to markets and rely on their computer generated buy and sell algorithms to enter and exit markets. Such algorithms have them constantly chasing prices higher by buying strength or chasing markets lower by selling weakness as all they are interested in is momentum in either direction. IF IT MOVES, CHASE IT – is their motto. Hedge fund activity is of such size that even the commercial traders in the futures pits in which I ply my trade and make my living are fearful of stepping in front of them. Now, if some of the biggest players on the planet decide to unload on a particular market, are you going to be foolish enough to attempt to single-handedly step in front of them and cause them to halt their selling by your own force of will?  Try it and see how long you last!
 
That is why you must have a point at which you know that a trade is not working in your favor and get out of the way of these players so that you do not end up buried by them. Keep in mind that the market could care less what yours or mine or anyone else’s opinion is. It will go where it wants to go when it wants to and will only stop when it is ready or in the case of a hedge fund selling orgy, when their sell programs stop issuing sell signals. That is the point you are attempting to catch when you enter a trade.
 
Sometimes, in spite of all the caution and research and analysis, the market simply does not cooperate. So what – that is life as a trader – just get out of the trade and wait for another opportunity. You will ALWAYS get another opportunity to trade that market but if you end up losing all of your capital in a hedge fund dump because you wanted to play the bold defender of the faith, you WILL NOT last long enough to get that opportunity. Keep that in mind and do not ever forget it. It is coming from more than 2 decades of trading experience.
 
Back to the issue at hand vis-à-vis Fishing lines and Rhino horns – in a falling market you DO NOT jump in and buy weakness because the market is falling. You buy it at a level in which you EXPECT support to develop or at which you have ascertained that downside momentum is ebbing. That level is determined by examining the price charts. When Jim states a level at which he is going to buy it is because he is making an informed decision based on an analysis of a price chart. I will do the same thing but I do not publicly state price levels. That is just a difference in our trading styles but we both mark our buy in points after careful analysis, not by arbitrarily picking some random number out of the air.
 
Before you buy in however, you should note a price point that you are willing to risk your trade to before exiting. That will vary for each and every trader depending on their temperament, their capital and their conviction. I personally HATE losses so I cut them short very quickly. That is why I get out of a trade that is not working and quickly forget about it and move on to the next trade. No one likes to lose money on a trade but how you handle a loss as a trader says a lot more about your potential to survive in this business than how you handle your winners. Anyone can do the latter (although some gloat entirely too much) but only a rare few can handle the former.
 
I will be the first to admit that there are times in which I will violate one of my trading principles and stick to a trade that has gone bad and even add to it but I only do that in those few cases that I KNOW BEYOND A SHADOW OF A DOUBT, that the technicians are simply wrong and that price is too cheap or too expensive. Keep in mind that knowledge comes from 2 decades of knowing the markets that I trade and even at that I rarely do such a thing so I do not recommend this as something that most should even think about doing. It should be noted that the futures world is completely different than the equity world. In the case of futures, one has to know the supply and demand picture and the nature of the particular product they are trading – in the case of the equity world a host of things could take place that could completely justify a stock sinking into the toilet. One of the cases that comes to my mind was the case with Crystallex a while back when the government of Venezuela announced that it was basically going to nationalize the mining industry in that country. I wonder how many traders ended their careers right then and there on account of that out of the blue occurrence. Taking a small loss in that would have been far preferable to getting wiped out, would it not?
 
I hope this clarifies some things for you all. I wish I could answer all of your emails but I simply cannot. Those of you who write to me in a civilized fashion can expect a civilized answer if I do find the time. Those of you who write to me in the spirit of a horse’s ass, can expect an appropriate reply, assuming I want to waste time answering your email.
 
Lastly, please do not blame Jim, myself or Monty for that matter because you might happen to own some junior mining shares that are going down. If you are looking to blame someone, blame the naked short sellers or the management that does nothing to protect its shareholders’ interests or whatever. Even better, look at the shares of the mining companies that are the leaders in the sector and move some of your money into those stocks at the appropriate points.
 
 Do not get married to a stock. Successful traders learn to optimize their trading capital and move it where they can get the best return on their money. Some of you are still pining away at the poor performance of some of the South African miners. Try to be objective – if they are not moving up as gold moves higher and there are other issues that are, then get rid of them and buy the better performing issues. At the very least, if you still think that they will turn around, then at least lighten up on them and move some of that money into the sector leaders. The name of the game is to make money – to do that you need strong performers that maximizes your investment. There is a reason why some of those stocks are not performing. We may not ever know what it is but the blunt truth be told – who cares? You will be much happier and self-fulfilled to see a stock that you have purchased moving strongly higher in a favored sector than sitting there mumbling, frustrated, angry and bitter because yours is going nowhere, especially after doing all the research and analysis that convinced you to own a gold mining company to protect and grow your wealth. Besides, your wife will think you are a veritable genius especially when you can buy her a new car or take her to a fancy restaurant with your earnings! In the case of you gals, you can always remind your husband that you treating yourself to a shopping binge or the works at the local beauty salon with your own money so he can leave off nagging you about going overboard spending.
 
I sincerely wish you all the very best of success.
 
Dan

 

 

Dear Friends,

I apologize for the late email and postings, but corporate responsibilities took up the day. I had an important meeting in the Sharon, CT office today.

My job here on www.JSMineset.com is to speak my opinion on a daily basis to the substance of gold as a certain medium of insurance against the unstoppable forces of a financial system that is broken.

Dan speaks as a man who supports himself and his family by trading markets.

Dan uses charts to make his point, but please do not assume that just because he charts a gold share for you that he is making any specific recommendation of investment in that issue.

I have been asked if the gold securities that Dan charts are his favorites. The answer is hell no. They are simply situations from different groups within the definition of gold shares.

Now let’s look at today’s gold market. My take is that today was nothing new. Gold is a currency. It reacts in a direct relationship now to the euro. All other ingredients that are assumed to create the gold price work into the dollar vs. euro relationship.

Because of this we could and many are tonight writing tomes on energy prices, the equity market, interest rates and other commodities.

I like simplicity. That means I look At THE EURO TO KNOW WHAT THE GOLD PRICE IS DOING AS THE DISTILLENT OF EVERY OTHER FACTOR OUT THERE.

Reactions happen in every market. When it comes to gold violence is its name.

This is a forced reaction because when the euro hit $1.5980 the panic alarm sounded in the dollar vs. euro relationship. A freefall was destined to occur.

Crude to gold works only via its impact on the dollar vs. euro action.

If we must speak about crude it is a black box barf reaction, and not the end of a major bull. The worst-case scenario under $125 is major, major buying interest that will wait for $110 to $115, but not for long before it steps up.

Nothing has changed fundamentally for the key element in gold, the dollar. The panic alarm went off as the dollar threatened a free fall. The greatest show on earth went to maximum TV exposure at maximum volume. The margin traders bailed and the rest of the public gamblers were sold out the next day in commodities.

Nothing whatsoever has changed. Gold is headed to $1200 this year and $1650 on or before January 14th, 2011. The euro will trade above $1.60 on its way to $2 plus.

Gold buyers now are at $910 to $915 and they will move up if not satisfied this week. My next buy is at $912.

The odds do not favor a gold price under $900.

I have traded gold backwards to how you should do if speculating in general commodities. In gold I have bought every reaction in a stepladder fashion, selling exactly the same way. It has worked ever time even though I have seen my life pass through my eyes on a few occasions.

The only selling that should be done is if you approach a margin call. Cover the call yourself before the session close. Do not wait for a margin call, and once you have covered, stay away from margin! If you have upcoming other needs for your funds, make sure you have completed the necessary actions to deal with them.

Other than margin or other financial needs, jump back into the hole we dug years ago, pull the same rock over your head and peak out in a week to see where we are.

Respectfully yours,
Jim

 

 

Dear Jim and Dan,

"Eventually the price of gold will seek a price such that the price of gold in USD times the amount of gold held by the US Treasury will equal the foreign external liabilities, thereby balancing the external balance sheet of the USA." This was said, written and advertised in Barrons in 1974 by Jim Sinclair when looking for $900 per ounce by the first quarter of 1980.

Let’s assume that the US still holds roughly 262 million ounces (please save the snickering!). Since there will never be an audit, assume what they say they have, they do.

Just released data by the U.S. Department of the Treasury reveals that federal debt held by foreign and international investors is $2438.6 billion.

Click here to view the report

Most CIGAs do not understand where gold is headed.

Eric

Dear Eric,

I do not wish to discuss that price as it would have the same effect as yelling “fire” in a theater. So many readers use margin that it terrifies me. Say this and they would margin themselves to the neck, being ruined in a single reaction like now only to see the gold price rocket out from here.

Regards,
Jim

 

 

Dear Jim,

The following is the commentary of a close friend of mine in South India.

Monty Guild
www.GuildInvestment.com

Monty,

You can feel it for sure here in South India and the price creep up is clearly only getting started.

Prices of Food and Gas Take a Toll in Asia
By KEITH BRADSHER
July 23, 2008

JAKARTA, Indonesia -While prices have been rising in the United States and Europe, the biggest increases are being felt in Asia, and countries like India and Vietnam are already having to deal with double-digit inflation.

Sharp rises in global food and oil prices are now spilling over into wages and broader measures of inflation across Asia, as the Asian Development Bank noted in a report released Tuesday.

Workers are demanding higher wages to cover their rising living costs, and companies are imposing higher prices for a wide range of goods to cover accelerating production costs.

The epicenter of the inflationary storm is really in Asia,' said Cyd Tuano-Amador, the managing director of monetary policy at the Philippines Central Bank.

Higher inflation in Asia is also starting to contribute to higher prices in the United States. According to the Labor Department, prices for imports from Pacific Rim countries — mostly Asian goods — rose 2.7 percent in the 12 months through June, after falling 1.4 percent in the preceding 12 months.

More…