The Buy Gold Game Plan: The Special Situation Edition

LST first wrote about the short gold/miners game plan in August 8, 2011. Depending on how violently this decline/correction/crash continues, the buy gold as a special situation event “path” seems to be opening up. The long gold game plan is summarized below, and is only for those with exceptional intestinal fortitude. Note that this is long gold as a special situation, NOT as a fundamental ‘investment’. LST will not parrot the “fundamental case’ for gold, physical gold, etc.

Here are the conditions in which LST will buy gold:

  • Rumors of certain fund(s)/financial institution(s) blowing up due to GLD positions. Forced liquidations.
  • Rumors of certain other opportunistic funds buying gold/related positions at fire sale, liquidation, and below-market prices. Something like the European Sovereign bond purchases in Q4 2011 when MF Global failed.
  • The speed of this decline picking up even further; headlines (ideally even “main street” headlines) about gold prices not being this low since ___.
  • The initially buy the dip guys shutting up, and not mentioning the debasement, QE, Japan, Cyprus, etc. arguments. More and more talks about over the long term _________ .
  • People posting a list of miners who are most susceptible to bankruptcy and other forms of financial distress, if gold reaches x, or y. So and so miners need to raise capital or die.
  • If there is a corresponding surprise rate spike in JGBs or USTs… that would truly be icing on the cake.

Note that the above are some scenarios/triggers… a wish-list, if you will. The true list is longer, and only limited by LST’s imagination.

As to whether LST “thinks” the above or similar will happen: what LST thinks does not matter. LST is not in the business of forecasting/prognostication, but rather, in making decisions and/or bearing (as opposed to taking) risk. The above may all happen this week, within the next few quarters, or not at all. LST is keenly more interested in preparing how to react under so and so scenarios, rather than talking about what LST thinks WILL happen. In the interim, we should all sing “when you wish upon a star…”

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