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I wrote yesterday of Larry Edelson who says, “Don’t be fooled, this is a suckers rally,” he has also said in the past, “Be ready to move in a moment’s notice as I will tell you when to get back in.”  These statements from someone who ultimately believes that gold is going to $5,000 (which I believe is a laughably low number)?  I touched on this but I’d like to expand a little.

First off who in their right mind would think that “they” or their “system” is so infallible in the face of today’s structural risk?  What if their system tells them to get long at 1 second after the market closes on a Friday…and then something happens?  Something like a bank or a derivatives failure?  Or some sort of “default” like…COMEX says, “Oops, we cannot deliver?”  Remember, I am assuming just “1 second” too late to be able to take action; this one second might as well be a lifetime!

I am sure that he has a secret system that’s “over my head” although he does talk about “Elliot Wave” theory and reading the charts which I can navigate.  Seems to me, that I remember the most famous Elliot Wavist of all time.  Robert Prechter who was telling us in 2003 with gold at $350 that it was going to $200…and still advises as far as I know against gold.  How well has that worked?

This is really just a question of “risk vs. reward.”  Assuming that Edelson is correct (which I do not currently); let’s look at this from a risk vs. reward standpoint.  His worst case scenario is a drop to $967(?) this would be a $350 drop or roughly 25% from here.  He is forecasting $5,000 which would be a quadrupling from here.  Even if you did wait and he was absolutely perfect on his buy, you will only be 30% better off.  Yes I know, 30% is 30% but how much “sweeter” will the home run you just hit feel?  Will it make a difference in your lifestyle or whether you “survive” the circumstances that caused $5,000 gold?  Probably not.  This is very similar to a poker bet where you gauge whether or not to bet versus your “potential win,” you risk paying 30% more to gain 400%…but you are assured to be in place when the move is made.

I think he is using a figure of $1,447 on the upside to be proved wrong and tell everyone to “get back into the water”…but, what if there is an event that causes metal to go “no offer” before you get his handy dandy “all clear” call?  If you woke up after a reset (and probably a bail in) would you pay $4,000 an ounce for gold?  Would you even have enough money left in your “bailed in” bank account to make a purchase?  Don’t tell me this won’t or cannot happen, this is already the “blueprint” and bail-ins are already being prepared for AND already have been used in Europe.

Me?  I don’t “bet this way,” do I want to be “all or none” where I can “save” 30% to have 30% more in the end if it means maybe having NOTHING or “not enough” when the time comes.  I have made some pretty crazy personal bets and have carried several  millions of dollars in margin at times in the past so I am not averse to “gambling” but when I do I want the odds to be in my favor and NEVER such that one single roll of the dice can knock me out of the game permanently!  Not owning, or not owning enough metal when the financial system collapses…which it mathematically will knock you out of the game…of life…FOREVER!

Looking at this bet from another standpoint, the bears began to come out in force once gold took out $1,650 to the downside and are still either out or short.  Assuming that new “bulls” have continually bought (based on volume stats, the biggest buying has been every approach to $1,200) since $1,650 all the way through to $1,180, back up to $1,400 and back down again for the retest…it is fair to say that an accumulated cost basis of $1,400 is reasonable.  Even using $1,920 as the starting point your cost basis should be $1,500-$1,600, who cares?  Your money is “out of the system” and into something real that cannot get bailed in.  It is also in something that is finite in supply, takes capital and labor to create and “in your hand.”

How “in your hand” is your bank balances?  People think of “money in the bank” as …their money.  This is as it should be but in today’s world there are lots of things that “should be” but are not.  When you deposit money in the bank it will then go on the banks’ balance sheet as something that they “owe you,” please understand this because this is the reality.  They are NOT safekeeping your money…they are BORROWING it from you!

Conversely, gold “in hand” is no one’s liability (except if a gang is roaming the streets scavenging for anything of value but that’s why you also have a little bit of lead stored also).  Gold is an asset, it is money.  It can be spent, borrowed against or traded privately if you wish and on your terms.  You will never hear “oh I’m sorry, we don’t have that much (of your money) available, please come back tomorrow” or even better “haven’t you heard?  83% of all account balances have been sent to the Treasury ‘for the greater good,’ they had to do SOMETHING otherwise you would have lost ALL of your money.”

Do you see what the risk reward really is?  It is about having capital out of the system and owning (or controlling through mining shares) as much metal as you can when the music stops.  Do I or anyone else other than the 50 or so people who run the planet know, REALLY know for sure “when” this will happen?  No.  But “betting” that you or on someone who sells subscriptions does know is a bad bet.  “Bad” because if you lose…you are toast.  Maybe I’m wrong and you’ll disagree with me but betting where you either end up in total financial (mental and actual) poverty versus being “just a little bit “richer” is beyond foolish but that’s just me.