"Bond Mkt Implosion & Gold Tactics"

Stewart Thomson

Nov 16, 2010

1. “I cannot overemphasize the critical importance of factoring the bond market into any analysis of the crisis now.” That was the sentence I started yesterday’s update with, and it’s probably the sentence I should start every update with, for the next six months!

2. I see a lot of gold analysts trying to gauge the “gold market correction” but they are seemingly unaware that the bond market just imploded, and Bill Gross basically issued a massive sell signal on his own fund, the world’s largest bond fund. For the past few months I’ve urged you to understand that when the bond implodes, there would be initial weakness in gold followed by tremendous strength. Here and now, the words “Gold” and “Bond” must be mentioned in the same sentence, or you are out to gold market analysis lunch.

3. The conventional view in the public, and a view held by many institutional money managers, is that lower rates produce higher gold prices (correct), and higher rates produce lower gold prices. Well, sometimes, yes. Sometimes, no. Sometimes higher rates produce an upside gold parabola.

4. In the second situation, higher rates and gold, in a commodity demand-related gold bull market,are a negative for the price of gold. In such a situation, gold functions as a commodity, and the economy gets higher prices as demand for goods increases. The cost of borrowing increases as the demand for loans increases because business conditions are solid. As the cost of borrowing rises, that hurts demand. Prices (int rates) for money and the price for goods both fall.

5. Look out your market window. Do you see a booming economy, or potential economic Armageddon? My message to you: the new bankster game is in play, and it’s a big one; the bond market. Bond market chaos that could send gold stocks parabolic on the upside. Here’s why:

6. I coined the term, “The Institutional Awakening”. The awakening is a bankster game to create a mass mindset of terror amongst institutions, a mindset that further QE won’t work to continue the markets recovery, and instead further QE will see bond market prices stagnate or even fall, while the US dollar falls like a rock. All in all, a nightmare situation, given the backdrop of the marked to model OTC Derivatives quadrillion dollar. Marked to model is: Marked to Lies.

7. In practical terms, meaning flows of liquidity by institutions, what the institutional awakening means is a mass panic out of bonds and into…?

8. What the gold community needs to understand is the LAW. Institutional money managers have written mandates as well as unwritten mandates on what they can and cannot do with their assets. Pouring money into gold is not on their “oh yeah, let’s do it!” list. It’s on their “if we dump our assets into gold, then our investors pull out, we get no pay, and we could get charged with securities violations” list.

9. The history of institutional money flows in a currency and bond panic is a massive flow of liquidity into the stock market. Having said that, what do YOU think happens to the Gold Price Thermometer of global financial health when that occurs, or is thought to be about to occur? I don’t think most in the gold community really understand what just happened to the bond market, and what this event means for gold.

10. I know that because, other than Bob Moriarty at www.321gold.com and Trader Dan Norcini at www.jsmineset.com, almost nobody is even mentioning the imploding bond market, yet they are conducting one study after another as to why gold “could be in a correction”. Translation: “Here are all the reasons why I just sold all my gold and you should do the same.” Thanks, but no thanks. In regards to the bond market, to quote John “Sir Johnny” Templeton, who uttered these words after the first phase of the markets crisis began in 2000,

11. “Does anybody know what just happened?”

12. Markets anticipate price and factor in what has already happened. The gold market is on the verge of anticipating the Institutional Awakening, meaning the gold price is on the verge of surging higher, not lower, while most are wasting current buy prices, standing there with no buy fills, thinking the game is to be the one to guess how LOW gold goes. Wrong tactics. Wrong tactics, bigtime.

13. The winning tactical play is to be the one who is buying gold here and now as it goes down. Much more importantly, the game is to buy gold stock, partially because there will be some buying of gold stock in major size by institutional money managers as the awakening, the mass terror, sets in. Gold stock has not even begun it’s parabolic move. The bond market demolition man is the trigger.

14. You can’t expect a monster fundamental factor like the implosion of the bond market to roll onto the gold market playing field and not cause a massive spike in price volatility. This is not business as usual. This is the factor in play now that could literally put Elmer Fudd Public Investor, Elmer Fudd Public Moron, onto the bread line. Millions of Fudds impaled by the Gold Punisher’s bond market harpoon. Those who thought gold was risky, and bonds lower risk than gold as an asset, are being revealed as complete market imbeciles. Their final revelation comes standing in the coming bread lines, created by the banksters to entertain and enrich themselves.

15. My view is the bond mkt-caused initial shock to the gold market comes after we make a new high above $1424, which would stun the current mob of gold top callers who you know, full well, are sure they have got 1424 as the top, after blowing almost every other top call, since the bull started at $250. One more for the Golden Gipper?

16. That initial shock on gold is going to involve the wrong view by institutional money managers that higher rates are negative for gold. If the scenario plays out, it could cause a big hit on gold of hundreds of dollars to the downside, perhaps as much as $500, a massive handoff of gold, from the fundsters to the banksters. But what actually occurs is going to depend on how the banksters play out their Awakening Game.

17. The theory is that falling bond prices are positive for the US dollar, because a higher rate of interest attracts institutional capital. I want to draw your attention to the 1979 period of time, when the US dollar began to rally, and the floor traders and large speculators began to short gold, thinking they were about to make piles of free money. The banksters were on the other side of that gold trade. Long Gold. What happened? Gold accelerated its rise, while the US dollar itself surged higher. The (leveraged) gold top callers shorted more, sure the top had to be in. Instead, gold surged hundreds of dollars higher, frying Team Shorty Pants to a golden crisp.

18. Today, analysts are thinking that a declining bond market is a positive for the US dollar and a negative for gold. That’s the view the banksters want everyone to have. All is fine, all is A-ok. A-ok or Z-ok, what’s a few letters in the alphabet of difference? For the record, I’m in the things are Z-ok camp, and have been since Dec 1999, when I told my people to get out of the stock market and begin gold items accumulation. Arthur Ziekel, head of Merrill Lynch Asset Mgt at the time, said “it’s 1929 again”. Ironically, millions of Merrill clients said, “No, it’s wieners to the sky forever time”.

19. What you are witnessing here and now with Bill Gross’ investors is an instant replay in the bond market, of the stock market with Arthur Ziekel. The firm’s own clients are too stupid to listen to the sell signals being given by the lead man. “I have $2 million in bonds. The head of the world’s largest bond fund just issued a sell signal on his own fund. Can I bring myself to sell one dollar of bonds now? No, because I’m ruled by greed.” -Elmer Fudd, Public Bond Market Investor, Nov 16, 2010. Fudd probably is being told by his golf ball advisors this morning that bonds are an ultra-bargain buy, gold is finished, and he’s lapping it up. Let’s give Fudd a pat on his head. Good lapdoggie, buy what the banksters tell you to buy, when they tell you to buy it, and all will be fine. “Take some more financial heroin, it’s better than vitamins, really.” –Banksters, Nov 16, 2010? Fudd, his bonds, and his golf ball advisors, are only things that I see being finished. Not gold.

20. Institutional monies will flow, and are flowing now, into the US dollar, yes. But notice the modest rise in the dollar compared to the fall in bonds. US Dollar "Big Rally" Chart. While subs know I’ve bought the dollar all the way down with my pgen buy generator, and the weekly chart shown here does look possibly positive, the extent of any rally is unknown, and all strength should be used to book profit on trading positions in preparation for a possible total wipeout type situation to the downside. There’s really not that much strength in the dollar given the magnitude of the bond wipeout. Here’s the Weekly Bond Mkt Chart. What a horror chart. It’s critical that you see what is really on this chart; you are looking at a potentially classic technical play of what happens when a massive head and shoulders top “fails”, meaning price rises above the right shoulder high. That’s what just happened recently and such a failure is a buy signal for a pipsqueak rally yes, (which occurred) but it is all-critical that you understand that such a failure is much more of a harbinger of danger to come, particularly after a major rally. The final top is generally near when such a h&s top failure event occurs. You may be, here and now, live, looking at the “bread lines trigger”, being pulled by the banksters. The coming pain to the real estate bottom callers is nearly unimaginable if the bond market end game scenario is now in play. The movie Apocalypse Now is reborn...

21. I believe a substantial portion of USD sells into any rally here should be re-allocated into the purchase of gold stock if this USD rally materializes into anything. I’ve talked about “Three Gold Nets” of buy zones for you on the GDX and the GDXJ/ZJG-tsx. Here’s the Gold Juniors Chart. Notice that I’ve now added a 4th much larger net in the upper price range. These “nets” are areas where you place buys on weakness. The larger net does not mean you allocate more risk capital and chase price. It means that at some point you are going to be faced with the reality of price in that range, and odds are high price is much more volatile than it is now.

22. Most bond investors are all-in on bonds now. Some institutional managers are cautious, and want much higher rates before buying the bond. There is an undercurrent of worry, the cusp of the awakening, a worry that QE targeted at govt bonds has reached the point of maximum saturation. “What happens if we load up on bonds, and the central bank QE programs cause the dollar to tank, while bonds go up only a bit? These rates of interest can’t compensate for a hit on the dollar!” –The Institutional Money Manager’s Mind. Nov 16, 2010.

23. If I was bankster, today I would be working feverishly to bait institutional money managers into the worldview that the dollar is a superbuy, and bonds are a superbargain. I’d look to get a rally in bonds from here and loan them money to buy more of their “winner”. Then I would look to take the bond down under 125 and start pumping the media with “maybe the situation has changed, maybe the situation for the dollar is much worse than we thought, and bonds may not be such a good investment.”

24. Watch the gold price thermometer while buying solid amounts of gold stock into this weakness. Ignore the analysis of the 1424 top callers who don’t understand the real implications of the bond market implosion. Get on the buy as the losers liquidate their gold stock in failure this week. Buy it… before the banksters take it all!