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Gold Juniors: It's Time For WarStewart Thomson 1. I have some very interesting information about the gold juniors today. Better have your heart medicine on standby. 2. Gold hit 1180 this morning. The dollar bulls continue their crazed focus on the intermediate trend, and at best their technical analysis gets a C rating. They called their pivot point correctly in timing the gold market. The only minor problem was they got the direction wrong. Gold top call number 1000 bites the dust. Only 1000 more top calls to go before they say "buy now, gold is a bargain at $5000, it's here to stay!" 3. Flying Five. I had to give this a lot of thought and needed extra time. What I'm talking about is the GDX Juniors. How do you boost possible reward by concentrating some risk capital into some of the issues? There are some systems that exist to play the Dow that way. To repeat: You take the Dow 30 stocks, and there are a couple of approaches from there. One is to take the 10 highest yielding of the 30, then buy the 5 of those with the lowest price. 4. That is essentially how I bought Alcoa and General Electric into Dow 6500 while most of the gold community madly shorted the stock market into the exact bottom. Where the value players got smoked is they looked at the price/earnings ratio for the whole Dow, and concluded it was still overvalued at Dow 6500. 5. Alcoa controls a lot of the world's aluminum markets. At a price of $10,9,8,7,6, 5 dollars a share, I want to be a buyer, particularly when I see the price/earnings ratio in the 6 or 8 area, while the MACD and TRIX indicators for the Dow are at arguably the most oversold conditions in 50 years. And so l was a buyer into the Dow 6500 bloodbath. 6. This week's revelation by the banksters that bear market funds were "inundated" by retail investors all through 2009 is a knockout blow to those in gold community who shorted the Dow into 6500 and as it rallied with huge money. You now realize you did so in partnership with the public investor, who has the worst investment track record in the universe. 7. Junior gold stocks are not Dow Industrial component monster corporations deemed "too big to fail". Many are more likely to be deemed "too small to be allowed to succeed." There are many in the gold community who seriously believe that their junior stock is a stronger deal than the Dow is. A coming sure rise in the price of a stock does not correlate with the underlying risk of the situation. 8. Assuming you accept the endless risks associated with a junior play, I think buying just 5 juniors out of the GDXJ is really just far too risky a play. But if you want to proceed, the play would be to simply look at the 10 largest market cap/revenues plays, meaning either the 10 largest market cap stocks OR the ten with the smallest market cap to revenues ratios (but this eliminates explorers). Or price per share to revenues per share ratio. Forget about earnings with juniors. Then buy the 5 of those ten with the lowest price. If you get into mining projections, you are starting to get away from simplicity and into complexity. I firmly believe the simple-minded investor will beat the one who over-complicates things. If you did a thousand pages of analysis, but your stock is down 10% or more from your buy price, you are not acting professionally in the market. You must be prepared 100% of the time to respond to price weakness. The investor with the weaker analysis but the stronger tactics will win over the strong analysis, weak tactics player, nearly every time. 9. I'm personally not confident that there is enough safety in that flying 5 juniors play. I prefer a simply "J 10", buying the top ten stocks with the lowest price. The 2nd approach would be to take the 20 with the highest market cap, and buy the 10 with the lowest price. 10. Remember, there is a monitoring issue. You may own a business or have other time-constraint factors. That is an argument to consider the simple price-based model. You simply own the 5 or 10 lowest-priced stocks and flip one out when a new one comes in. 11. The other approach based on gold-reserve and cost estimates. That is more complicated. A ratio of total gold reserves to cost of mining is set up. Then the 5 or 10 lowest priced of those stocks are bought either outright, or in a pyramid formation. I wouldn't buy anything outright, but that decision is yours. 12. Look at the top gold writers' model portfolios in 2008. Some of these people have done astronomical homework. The reality is the price quotations on those stocks fell 70-90% because the investors holding them sold. All their mine and exploration analysis, their relationships built with directors and analysts, all of that out the window, leaving the investor cowering in front of King Price. 13. This is what the fundamental analyst doesn't understand: The emotional component to the mining stock investment. 14. You may have tremendous expertise in understanding the fundamentals of a company, but in the end what matters is, are you, right now, turning that understanding into PERFORMANCE. As gold bangs into 1180, I have to be a seller or more of my trading positions. Just as one Dow stock may replace another one in the Flying Five there, you may see a gold juniors stock enter your flying five or "Juniors Ten" that you don't like. The stock picker will get into trouble as this "bad apple" arrives. You don't know what the future holds. Maybe an intermediate is on the verge of buying out your gold junior stock dog, and the entire operation will be revitalized. What YOU see currently for the situation, may or may not be the future. 15. The total market cap of the GDXJ is about $425 million. I would guess my subscribers own about 10% of it. If there was a selloff that number would likely grow to around 20%. My feeling is that gold rises to somewhere around 1400 by the spring and then disintegrates back towards 1000. Would I bet money on my price scenario? No. I respond to price when it happens. But such an action would present a huge buying opportunity of size. 16. Using a price-based flying five scenario, could see my subscribers effectively take control of the float of a chunk of the GDXJ. Here's the kicker: I'm not a juniors guy. I have repeatedly said, "I time sectors, I don't care what your mining company is doing". Some considered my statement almost sacrilegious or the actions of a gold community traitor. But those who control the juniors indexes are in a potentially very powerful position, depending on what happens to the gold price going forwards. 17. Remember, the FLOAT of a stock is quite a bit different from the market capitalization. What I've done is effectively set up my subscribers, by being patient, to be in position to take total control of the major juniors stock market float. For all those in the gold community know, it's already happened. Are any of the stock flippers out there listening? Hope so. I told you all I'm not fooling around. Mr. "I don't care about juniors" suddenly has taken his mask off. Surprise, it's me! One of my subs who I nicknamed "Babe Ruth" because of his market actions from gold $300, said "This is War!" in a weekend email to me. He was referring to buying the juniors hard now, and even harder into any and all price weakness. The battle is against the hedge funds that are short the juniors through their OTC derivatives game. 18. This IS indeed a war. And Babe Ruth is not alone. Not by a long shot. The power of plankton is greater than the whale. Together, it is astronomical. The power of my pyramid generator cannot be defeated because I've prepared my subscribers to buy all the way to zero in the Van Eck juniors ETF, and more importantly, into the underlying stocks. So go ahead Mr. Hedgehog fund, get some more loans from the banksters to buy more juniors gold short OTC derivatives. The banksters will even loan you more gold stock to short than is held in the clearing houses, sort of a fractional reserve banking system applied to junior golds. Keep on truckin' Mr. Hedgehog Naked Short. The banksters will make the most amount of money in the gold juniors because they hold the bull side of the gold derivatives. I accept second place. My subscribers will make the 2nd biggest amount. And nothing is going to shake us out of the gold juniors tree except the banksters killing the whole system. 19. Bottom line #1: I just opened the cage of the Graceland Gold Juniors Tiger Cage. The tigers are out. They are ravenous, and they are coming for the hedgehog deer. Because my subscribers are generally hardcore factory and business owners, I bring a lot of liquidity to bear on a market if these people are convinced my call is a correct one in terms of prime market opportunity, which I am. I also have many regular hardworking people in the gold community who are sick of the Gman refusing to mention the word gold while bloating himself with no limit. They are very very angry right now. The gold whales + the huge fleet of gold plankton I bring to the table = ThunderCash. Let's see how the overleveraged funds, who are sweating bullets now on their OTCD junior plays, handle this little party pack I've created for them. I'm backed by a team of extremely wealthy business owners, and highly skilled lawyers and accountants. It's a fight so I don't expect to win every round, every price tick. 20. I don't make many price predictions: Here's one you can paste to your computer: It's going to end up a slaughter of the hedgehog shorts, which will send the juniors into the sky like a nuclear powered slingshot. Because the banksters are holding the long side of the OTCD juniors trades, the funds are in the weakest possible position imaginable, unknown, incredibly, to them. Dollar super rally? A crash is more likely. The euro made a new high this morning. So much for the supposed line in the sand at 1.50. The euro blew thru there like a rocket thru ricepaper. 21. I'm going to be unveiling a whole series of buy programs on my website on the juniors. Together these programs are going to ramp up the assets committed to the juniors in a major way with the ability to withstand any and all price weakness. Because I never recommend using leverage, we can't be defeated. Picture General Patton on a Gold Juniors Stock Jeep. That's you. Charge! 22. I'm a little worried by a statement that Jim Sinclair made yesterday about gold and silver ETFs. He spoke about delivery issues on the metals futures markets producing a run on the ETFs. Most of you have quit trading GLD-NYSE. If you have not switched to a smaller entity like GTU-NYSE, I would suggestion you are beginning to play with fire. IF an ETF does hold all the gold they say they do, the market price could be hit in a selling frenzy, but since a part of the gold is allocated to you in trust, you are not fried. But if it turns out your ETF doesn't have all the gold it claims to have, (or worse, very little of it) you could be in major trouble. Ask yourself this: Mr. Paulson owns billions in GLD-NYSE. Do you think his arrangement with the custodian is the same as yours? Maybe so. I wouldn't bet money on it. In a firefight, I'd bet he comes out fine while the little investor joins a multi-year line-up of creditors. How the Gman would act in such a situation is unknown. Would he label the action of the ETF as fraudulent? The Gman legalized mark to model accounting for OTCDs and refuses to audit the Fed. Do you really think YOU are high on his list of priorities? Would the prospectus clear the ETF of all wrongdoing? I bet it would. Don't watch gold go to $2000, 3000, 5000 while you stand in the creditor line. Because the creditor line is usually followed by the bread line. 23. Think about this: If there was a GLD-NYSE panic, who would the buyers be as a huge panic ensued to get out? I would suggest it would be the banksters, but by the time it occurs, they could be buying up the assets of a closed-down entity. "All" they would get is the physical gold that would likely be "found" later on, years after you were starved out in the creditor line. 24. My suggestion is: focus on individual companies and physical gold. Nov 25, 2009
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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am. The newsletter is attractively priced and the format is a unique numbered point form; giving clarity to each point and saving valuable reading time. Risks, Disclaimers,
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