Bank of Japan Drops Bomb - Gold Explodes

Hello Everyone,

I have just returned from the good ol' US of A and am happily nessled back into my hideaway high above the beautiful beaches of Acapulco.  I had been on planes for most of the day but had been logging in between connections and the markets were on fire after the Bank of Japan's decision to drop rates to nothing and open the spigot - something they've basically been doing for more than 20 years now and they still can't figure out why its not working.

Upon seeing the market reaction today I immediately turned to Ed, a literal genius of the markets and a person who is much more focused on the day-to-day movements and data than I am with my more big picture, geopolitical followings.

Here are Ed's comments after today's market action:

The markets began to react instantly after that announcement overnight - as Jeff commented on in his blog post last night - as it pumped fresh enthusiasm into the general expectation for the Fed to follow suit with QE II.  At this pace we could hit our $1400 target in a matter of days, and the gold stocks must be set to soar.

We have been dead right on almost all of our market stances in the last few months.  We received a few coarse emails about our bullish short term stance on the US markets in August and September but the thing people have to realize is that we use Austrian money supply as one of the backbones of our methodology.  The great majority of market participants are using faulty data and economic theories to attempt to value and predict the movement of the major markets.

Our understanding of Austrian economics and our proprietary techniques to gauge the markets gives us, in our opinion, a great advantage.  And that advantage has shown in our results which have been outstanding in the past 3 months.

That said, it is time to interject with some caution.  I tend to get cautious around the second week of October.  The month of October is an odd one.  Often, when things are going well for us in September, they either accelerate after October 12th, or they reverse.  And often October is a countertrend month in gold.

We received a tip from a bigtime European fund manager who manages billions, warning us about October 7th.  I don’t know if that was when this moratorium on gold in the AIF ends, or if he meant to tip us off about some external event he is expecting, but it got me to underscore my general apprehension about October.

On the other hand, it’s interesting that I’ve been suckered into being more cautious than I should be in the recent month - we never said sell (which is a good thing) but on two occassions we did interject with some words of warning.  This ability for the market to dupe us to the upside is bullish, in my opinion.  The market is telling me I’m being too cautious, like everyone else probably.  Hence it is trying to train us to embrace risk by punishing us for being cautious.  This is characteristic at the beginning of a substantial move.  It’s how the market gets us all in.  And just when it is ending, when enough people are convinced that the risk is being out of the market, and they’re all long the dogs because they sold their winners too soon, Mr. Market will change the rules and punish investors for throwing caution to the wind.

So I say do not be in a rush to take profits.

However, if gold prices reach my $1400 target high for 2010, which looks conservative now, it would be a good idea to raise some cash, especially if it happens ahead of the Fed’s decision to ease further.  Although we’re bullish to at least $5000 in the long run, the market could over extend itself in the short term.  In fact, it is likely to if we’re right about being at the foothills of a mania.  Ultimately if it runs too far and the Fed decides to pull the plug on QE II then look out below.  Too far would be to blow through $1650 without QE II, imo.

It’s easy to criticize me for sounding cautious here because with respect to gold the right thing to do is to just buy and hold it.  But when those gold price liquidations occur and the equities are valued for a $2000 gold price, a drop back to $1200 is painful even if temporary.

Yet it is probably because the 2008 debacle is still fresh on everyone’s minds that the market continues to steadily advance.

Excellent words of advice and insight from Ed.  Our stock portfolio which Ed has so finely crafted has been up substantially in the last 3 months and as Ed points out above it still has a long way to go higher.  How it gets there, though, is the trickier part.  Try a full subscription for only $25/month and no obligation to receive our full stock recommendations and market updates in realtime.

In the meantime, we have joined the Twitterverse and The Dollar Vigilante is now on Twitter here: http://twitter.com/DollarVigilante.  Add us today.

For our full & basic subscribers we will have a full update on our portfolio recommendations in your email box as soon as tomorrow as the markets have been moving fast and there is lots we need to update you on.

That's all for today... another great day for our stock portfolio!  These central bankers are going to make us rich!

Cheers!

Jeff Berwick

Chief Editor

Comments

[replica chopard watches]

Coach replica Handbags
Mulberry replica Handbags
Balenciaga replica Handbags
Marc Jacobs replica Handbags