Stay the Course: Gold is Going Much Higher

December 3, 2003
Jim Sinclair

Don’t be bamboozled by the chopping action in gold directly above the $400 level. There is still at least one interest out there desperately trying to tire out the gold bull by throwing paper blocks at the gold market against all hope. But as they say, “Hope springs eternal.”
 
 Gold is going much higher from here and when it does the action will be like a lightening bolt - only this time it will be from the ground up. The floor traders will soon recognize that COT has expended its ammunition and its position is about to be overrun.

 What is certain to become exhausted very soon is the attempt to reverse a primary bull market which has already refused to turn back at 7 key levels below and above $300.

 I smell a major financial problem brewing here as at least one ego-mad trader - who still harbors  the impression that he owns the gold market - will like all major market Muktars of the past be run over by the stampede he himself created.

 Uncovered gold hedgers will have to run up their loan lines to service their positions. That run up will cause a deterioration of their balance sheets. With gold at $500 (coming to a theatre near you – and probably sooner than you think), they will be refused further loans because regulations prevent lending to “out of ratio” borrowers.

 Just as Newmont’s debt increased significantly on its quarterly statement as its loan line was called down just before the Normandy hedge position was acquired, expect to see the loan lines expanded and cash positions decreased for the hedger that mistakenly believes he has the luxury of time before a cover of his short is required.

 The loan lines will grow to service the margin-free short of the gold hedge’s trigger by what we shall call “delayed gold sales expenses” that are needed to service the difference between market and mark to market in the quarterly statements.

 Gold has acquired the habit of trading with every tick of the dollar. So the entity trying to hold gold down must also work to contain overnight prices thereby creating the chopping action we’ve seen in gold lately. The hidden strength in gold is that it chops and recovers thereby thwarting the desires of the hedger-traders.

 Gold also exhibits this trait because the Comex brain surgeons leaning on their crutches are watching the dollar like the vultures they are. The life expectancy of this mode of trading is short term at best. However, the method of coining money for those poor devils who, as I do, like to trade for fun and profit, involves buying the dips and selling the rises - but they do not get short. It worked again today like clockwork and I suspect it will tomorrow as well.

 The longer it takes to ignite gold’s lightening rod, the more money can be picked up by scale-down buying. Then, when gold hits the first buy point back on the up side, start the scale-up selling. A bit simplistic perhaps but why argue with success? Of course, this is for traders only.

 The US dollar is one sick little puppy. It has only one way to go regardless of the fast “run ins” and “run outs” perpetrated daily by the Exchange Stabilization Fund to steady its decline.

 Germany’s Chancellor, Gerhard Schroeder,  traveling in China recently, reiterated his position that Germany does not see the strength in the Euro as a disturbing event. The Asians loved that statement and dutifully loaded up on Euros.

 What happened to his jumping up and down a few months ago when the Euro first went to 1.19? Politicians like most humans are a strange breed. What they say for public consumption is usually quite different from they actually believe. So whatever dollar strength we get is transitory and should be used by traders to their advantage.

Just remember that trading is a business in which you seek profits and not recognition from your peers. As a business, gold then becomes an inventory to be turned over for profits. That requires discipline and this applies to the conservative investor all the way up the scale to a “Wild Cat Pete” like me.

 Tactics will change and I will keep you informed. For the time being, traders should buy the dips every day and sell the rises. Conservative investors should enjoy the action like a sit-com. For aggressive investors, modest sales along the over bought side of the Power Up trends are in order as they occur.

Sounds silly in its simplicity to me as well but it’s working quite nicely and the new pants I’ve ordered have extra-deep pockets.

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