The major thrust in the demand for gold is not for jewelry. It's not for anything other than an escape from what is perceived to be a fiat money system – paper money – that seems to be deteriorating.
Don't freak out... Yes, gold had its biggest one-day drop since December 2008. But it's still trading near $1,800 per ounce... The same prices we saw last week. Nothing goes straight up. And no, gold hasn't topped. We're just seeing profit-taking today. Look at these corrections in gold and silver as opportunities. Let the new money flee.
Oh… and the above quote is from former Federal Reserve Chairman Alan Greenspan... a man who knows a thing or two about fiat money. I can't wait for Bernanke to sing gold's praises after his reign of terror ends.
The world, especially Europe, is still in turmoil. European credit default swaps (default insurance) hit an all-time high. Greek two-year paper now yields more than 40%.
On the subject of Greece… German Chancellor Merkel's ally, Ursula von der Leyen, called for bailed out European nations to post gold as collateral for funds. Merkel rejected the idea, saying it's "not the right way." However, top European Union leaders are still considering taking gold for payment.
It's certainly better than the toxic loans on most European banks' balance sheets. Take a look at our favorite European bellwether Unicredit. It's down below $0.90 a share...
And the banks are only expecting more hard times... UBS announced it was firing 3,500 people (5% of its workforce). That brings total cuts at European banks to 40,000 this month alone. (And those are 40,000 who will have a difficult time finding another job.)
We've been publicizing Jeff Clark's prescient gold trades recently. When gold made its huge rally from $1,500 to $1,900 an ounce, Jeff was ready. His readers made 80% in one week trading Market Vectors Gold Miners ETF (GDX), 80% in one day off Gold Fields (GFI), and 55% in one week off Kinross Gold (KGC).
Last week, Jeff sent an update to his S&A Short Report subscribers saying he expected the gold trend to reverse. We wrote about it here. He was one of the few traders brave enough to short gold.
The day after Jeff shorted gold, the metal hit an all-time high of more than $1,900 an ounce. That day, Jeff sent a few of us in the office an e-mail saying, "The pit of my stomach aches and flutters when I think about being short gold. It is a psychologically difficult trade. These are the ones that usually work out well if I just turn off the computer and walk away for a few days."
His perseverance paid off. Gold plunged to $1,778 an ounce today after the Shanghai Gold Exchange lifted gold margins on forward contracts (for the second time this month) to 12%. Also, jittery traders were taking profits after gold's huge rise.
Today, Jeff sent an update to subscribers closing half his short-gold position for a 100% gain in exactly one week. If you haven't yet taken part in Jeff's commodity trading streak, today's your chance.
For the past few weeks, Jeff has watched the oil sector get pounded. One of his favorite trading indicators fell from its most overbought reading of the year to its most oversold point of the last two years in just a few days. Then the index bounced higher, signaling a "buy" yesterday.
To give you an idea of how oversold oil is right now... An index is overbought when it registers above 80. An index is oversold when it drops below 30. Two weeks ago, Jeff's indicator for the energy sector dropped to 2. That's extremely oversold.
But yesterday, the index crossed an important bullish indicator. This trade has set up three times in the past few years... And each time, the oil sector jumped 15%-20%.
Jeff is recommending a certain stock in the oil sector that's super-cheap and highly correlated to his favorite indicator index. (In other words… when the indicator soars, so does this stock). He expects readers to make 100%-150% on the calls he recommended. You can learn more about the S&A Short Report and access Jeff's oil trade, here...
New 52-week highs (as of 8/23/11): McDonald's (MCD) and Pulte short sell (PHM).
In today's mailbag, praise for Jeff Clark and yet another call to see our "Hall of Shame." Send your notes to feedback@stansberryresearch.com.
"Jeff Clark is a frickin' genius. My gld puts that I bought for 1.00 last week are at 2.48 as I type this." – Paid-up subscriber Dave
"Please send me your hall of shame. Your 10 worst investments. Let's be balanced here, so I can fully understand how you trade. Good Luck with your work." – Paid-up subscriber Ben
Goldsmith comment: We get an e-mail like this a few times a year. And we published our Hall of Shame in the June 27, 2007 Digest. We hope this helps you get balanced.
Regards,
Sean Goldsmith
Baltimore, Maryland
August 24, 2011
A new gold bull arises... Germany wants gold as collateral... Unicredit tanking... 40,000 European bank layoffs... Jeff nails the short gold trade... Our Hall of Shame...