Dear Subscriber,

In my June 20 column and in subsequent follow-up columns, I told you in no uncertain terms that ...

An imminent crash would occur in the price of gold, silver, and most commodities.

The U.S. stock markets were top-heavy and headed much lower.

The euro crisis would be the catalyst for a 2008-style selling panic in virtually all markets.

Most importantly, I gave you a number of great ways to consider playing what I saw unfolding in stocks, including ...

1. The ProShares Short S&P 500 Fund (SH). Or if you wanted to be more aggressive ...

2. The 300% leveraged inverse ETFs such as the ProShares UltraPro Short Dow 30 ETF (SDOW), and ...

3. The ProShares UltraPro Short QQQ ETF (SQQQ) ...the ProShares UltraPro Short Russell 2000 ETF (SRTY) ...and the ProShares UltraPro Short S&P 500 Index Fund (SPXU).

Since then, and as I pen this column, the Dow Jones Industrial Index is down more than 7.25% ...the S&P 500, down 8.75% ...the Nasdaq is down 4.87% ...and the Russell 2000, down 14.83%.

And the investment vehicles I recommended to take advantage of the decline in the stock markets have had some pretty decent gains. At their recent peaks ...

The ProShares Short S&P 500 Fund (SH) gained as much as 12.5%.

The ProShares UltraPro Short Dow 30 ETF (SDOW), as much as 32.5%.

The ProShares UltraPro Short QQQ ETF (SQQQ), as much as 14.2%.

The ProShares UltraPro Short Russell 2000 ETF (SRTY), 60.1%.

And the ProShares UltraPro Short S&P 500 Index Fund (SPXU), 38.9%.

While the recent bounce in the markets has taken a chunk out of those initial gains, there's no reason to worry, more gains are coming. Here's why ...

First, I don't believe stock markets have bottomed. Indeed, the Dow Industrials have given me numerous sell signals and at this time, a move down to Dow 9,000 remains highly likely.

Second, Europe's crisis is far from over. Though there will be lulls in the crisis and inevitable bounces in the value of the euro, I believe Greece will eventually default, ending the European Union and sending the euro into a total meltdown and a cascading series of dominoes that involve Italy and Spain and huge European banks.

Third, the dollar continues to show short-term strength as a result of the euro crisis. This means that as the dollar rallies, a wave of short-term disinflation will hit our shores, sending both stocks and commodities lower.

Bottom line: If you acted on any of my suggestions in that June 20 column and subsequent writings, hold those positions!

To reduce risk, I now suggest placing sell stops on your positions at levels approximately 12% below your entry price.

For example, if you purchased the ProShares UltraPro Short Dow 30 ETF (SDOW) on June 20 at its closing price of $34.29, you would now place a good-till-cancelled protective sell stop at $30.17 ($34.29 – $4.12) to limit your risk.

AS FOR GOLD AND SILVER: Their declines are NOT over yet either!

I see gold falling to below $1,525 — down to as low as $1,432. If that level gives way at any time, gold could fall all the way to the $1,100 level.

I also expect silver to fall at least to the $23 to $25 level. Believe it or not, if silver breaks $23 at any time, it should fall as low as $19.

I also have not recommended the selling of any of long-term core gold positions. As painful as it might be to hold on to profitable gold positions as gold pulls back, exiting them makes no sense to me.

It is far better to keep the long term in focus, and add to your core metals holdings when the dust of this correction settles. Don't worry, I will alert you when that time comes!

If, on the other hand, you did hedge any of your core gold holdings, my recommendation is to hold your hedge until:

A. I give you the all clear signal that the metals have bottomed.

Or ...

B. I'm proven wrong and gold closes back above $1,890 on a Friday closing basis.

Until that happens, gold and silver remain vulnerable to sharp new lows during this corrective, disinflationary phase.

I expect virtually the entire commodity complex to get hit heading into the end of this year and into 2012, including base metals, soft commodities, and grains.

From a long-term perspective, this pullback will prove to be resoundingly bullish. It will set the stage for another round of quantitative easing from the Fed and other central banks as well.

Now, to some of the most frequent questions I've been receiving that need answering ...

Q: Do you think Bernanke will help bail out Europe?

A: Great question. Yes, in the end, when push comes to shove, he will. He's already shown an inclination to do so by providing currency swaps with Europe, essentially loaning them dollars in exchange for euros, to provide European banks with dollar liquidity.

When Europe really begins to meltdown and its large banks risk failing, I'm absolutely sure he will take it to the next level and print dollars to lend to Europe.

It will not save Europe, though it may stabilize the banks. In the end, the euro will fail, Greece will default and pull out of the European Union, and there's a good chance Italy and Spain will too.

Q: You are right as rain on gold and silver's pullbacks, Larry. But with the crisis in Europe getting worse, why aren't the metals rallying instead? It makes no sense.

A: Simply put, the crisis in Europe is so bad that it's causing troves of liquidation of all kinds of assets, precious metals included, as investors seek out liquidity above everything else.

Mind you, savvy, well-heeled investors are keeping their gold. But the average investor now needs liquidity more than anything else. So you're seeing liquidation of gold by these investors, who outnumber those that are well-heeled enough to stick with their gold.

Q: With the U.S. and European economies sinking, how can inflation take off to the upside?

A: Inflation is not taking off to the upside. It already has. Now we are merely witnessing a pause in the first round of inflation.

Later, as Bernanke pumps up liquidity again to try and save both the U.S. AND European economies, the next phase of inflation will take off, and it promises to have much more upward momentum than the first phase we saw over the last two years.

Q: Larry, many are calling for the Dow to fall to new lows, below 6900, its March 2009 low. Do you agree?

A: No, I don't agree. I do see the Dow falling to 9,034, perhaps to 8,000, worst case. I believe it will make a higher low than March 2009, which will set the stage for the next big rally in stocks, as they are monetized and inflated higher.

Keep in mind that U.S. stocks have the ability to act as an inflation hedge under certain circumstances. Those circumstances include desperate Federal Reserve monetization while other parts of the world, in the present case Europe, collapse.

Just ask yourself a question: When the major crisis hits Europe, where will all the money that flows out of Europe go? Some of it, naturally, will go into gold, enough to drive gold through the roof.

But all of it cannot fit into the gold market. Therefore, some will go into other investments and asset classes. For the time being, that's U.S. bonds.

But later, when investors realize that they jumped from the frying pan (Europe) into the fire (an equally bankrupt U.S. government) — they will begin to seek out blue-chip companies, many of which have far better balance sheets and earnings' prospects — even in a depression — than either the U.S. or European governments have!

Q: Larry, what number in the Dow should I be watching to determine if the next leg down in stocks has started?

A: Keep your eye on Dow 10,358. Once the Dow closes below that level, I believe Dow 9,034 is locked in.

Stay tuned!

Best wishes, as always ...

Larr