Posted by Cosmokramer on the KXL site.

www.solomonsmallcaps.com

CAPITULATION STAGE:
PANIC SELL-OFF IN GOLD

August 11, 2008
8:00 pm (Pacific Time)

Gold breached support at $850 an ounce today and has plunged again this evening in the Asian markets, now trading at $806 an ounce. This panic sell-off was something we warned about Sunday evening, and could extend into trading Tuesday morning. Such hugely oversold conditions have rarely been seen in the gold market - in gold itself and in gold shares - and in our view this presents an incredible buying opportunity. What should investors do?

1. First, do not panic. This must be viewed as an opportunity, if you have available cash, so do not let the emotion of “fear” force you to do something stupid such as selling your favorite, high-quality gold stock at a rock-bottom price. The fundamentals for gold remain strong, and does it make sense that gold could move below the cost of production which for many companies is now at or above $700 an ounce? We expect very strong physical demand from Asia and elsewhere overseas to kick in with gold at current levels and on any drop below $800;

2. If you do have available cash, we suggest you invest it where you will find the greatest leverage in a rebound which we believe is now imminent. There are many different possibilities, but here are three that we suggest:

a) HGU ETF (TSX). Closed Monday at $15.00, down 53% since its $31.75 high July 15;

b) Goldcorp October call options;

c) Agnico-Eagle November call options.

If you do not have experience with options and futures, and you’re not comfortable with those types of investment strategies, then simply purchasing an ETF such as the HGU (which trades just like a stock, symbol HGU-TSX) would be the route to take. This gives you approximately 2:1 leverage on any move up in the TSX Gold Index.

Venture Index

With today’s large drop in precious metals, the Venture Exchange fell a whopping 76 points and plunged to a new 52-week low of 2,015, just 65 points off an important support area (1,950) from 2005. History has shown that whenever the Venture Exchange hits an important “bottom”, it does so with a severe last-gasp “plunge” on significant volume. That’s what we want to look for as a signal that this market is ready to turn. An intra-day drop of 100 points Tuesday, for example, followed by a recovery back over 1,950 by the end of the day is the type of action that we would like to see as a strong signal that this market has, for now at least, bottomed out.

As with all investments, we recommend you do your own due diligence, invest only with money you can afford to lose, and never put all your “eggs” in one basket. Invest wisely, and we suggest taking at least half your profits off the table on a “double”. Also, please read our disclaimer near the top of our web site.