The Yellow Caution Flag is Flying

In this issue:

• The Yellow Caution Flag is Flying

• Our Current Buy and Hold views

Our Current Buy and Hold Views

We have temporarily placed a Hold on many of our positions pending our views of

the markets over the next several days or weeks. As of Friday afternoon we have placed a Hold on substantially all of our positions except for those with strong insider buying. There will be time to make money but for now let's be smart and wait until we are more confident as to the direction of the markets.

The Yellow Caution Flag is Flying

In our opinion, the gold and silver markets are at a critical crossroads and the
coming several days will be telling as to the future short term direction.

Long-term, meaning later this year, we would expect the metals and our
shares and warrants to be trading at substantially levels, so our concern
is for the high risk we see for the coming weeks and months not only in
the natural resource sector but in all of the financial markets.

We follow many different analysts and virtually all were 'surprised' by this
unexpected move to the downside. The blast of energy hitting the
markets was intended to be to the upside leading us to highs in February or so.

Now, in our opinion, the yellow caution flag is flying and our thoughts should
be more with preserving the great gains we had accumulated over the last
year as opposed to establishing new positions. Let's build our cash reserves and
look for the next big buying opportunity in the coming months.

We are providing you with some hedge strategies and the brief comments
of a couple of the analysts/newsletters which we highly recommend.

Steve Saville, www.Speculative-Investor.com has some insightful
views and we would like to share some of his recent comments:

"....Gold futures broke well below support in the low-$1360s on Friday, but
then rebounded to close the week above this support. Gold therefore remains
range-bound. Also, last week's 3% decline in the silver/gold ratio wasn't
sufficient to signal a trend change. An additional decline of 3% or more over
the course of the coming week would, however, be sufficient.

The HUI clearly broke below short-term support on Wednesday and fell
a bit further over the remainder of the week, but this doesn't necessarily
tell us anything meaningful about the future. It is quite possible, for example,
that the HUI is now close to the end of a short-term correction and will soon
commence an advance to new highs, while it is also possible that an
intermediate-term peak is in place and that the next rally will end at a lower high.
There is simply no way of knowing at this time. Fortunately, there is no need to
know or to guess. Provided that you have a sizable cash reserve, you should
now be planning to use the current weakness and whatever additional weakness
occurs over the next fortnight to methodically scale up your exposure to the
gold sector. You will then be in a position to take some profits after the market
rallies, regardless of whether the rally turns out to be the continuation of last
year's intermediate-term advance or a counter-trend rebound within a new
intermediate-term decline...."

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Recent comments from The Aden Forecast, www.adenforecast.com:

"...Up like a rocket, down like a stick is becoming the slogan for gold and silver.
Yet its fall from a record high over the last two days is a moderate decline
compared to the surging rise. It is, however, a sign of caution and the likely
start of a more significant downward correction. Keep in mind, the current rise
we call a C rise has been the longest and strongest intermediate rise in this
10 year old bull market, and it's certainly entitled to some down time. The
indicator is starting to show that the rise is probably over (see Webchart 1).
Gold broke below last week's support. But more important is the $1365 level
as a sustained close below it would strongly suggest the surging five month
rise is over for now. Gold could then decline to the $1300 level but it would
still be very strong...."

The longer term 65 week moving average is now at $1210.
 

                                         ______________________


David Nichols of www.FractalGoldReport.com whom we have followed closely since
May 2009 is leaning to the view that gold has peaked earlier than his
projected Feb 18th target.

"....I think the most likely explanation for the weakness is the down cycle is
taking over -- or if it hasn't quite taken over completely, it's getting ready to.
I may be over-reacting to this particular drop, and there may still be plenty of
upside into Day 64 in February, but a weekly close back under $1,377 was
definitely not in the plans.

I'm still very concerned about what will happen to gold if it can't get above
these 38.2% retracements of this last surprising drop. I think that will be an
unmistakable sign that something different is developing, and we'll need to
adjust our expectations accordingly.

I have some ideas gestating about this big pattern if we don't see an end-spike
right now, which I will discuss in the weeks ahead, but at the very least after
Month 64 gold will be in position to go back down for a 38.2% retracement to $980...."

                                           _____________________
 

HEDGING POSSIBILITIES:
 

Symbol

DGZ -   ETF (Power Shares DB Gold Short ETN) an inverse Exchange
           Traded Note that gains in value as gold declines)

ZSL -    ETF (ProShares Ultra Short Silver ETF, an inverse ETF that
           seeks to gain twice the value of any decline in silver)

SH -     ETF (ProShares Short S&P 500 ETF, hedging for a
           potential decline in the stock markets)

SPX      Puts/LEAPS (at least out to December 2011) on the S&P 500 to protect
           your market portfolios in the event of a market downturn.

I have spent several hours looking for other significant hedges to protect
our portfolios in the event of a serious downturn in the metals and our shares.
I have looked at the put options/leaps on numerous vehicles but am
finding the premiums to be very high. My view is that we want a hedge that
can generate potential gains for us of at least 300% or more.

If you have other ideas as to hedge strategies I would like to hear your
ideas for the benefit of all subscribers.

Obviously, if we new for certain there was going to be a serious meltdown we
would choose to exit all or a portion of our holdings (50% - 80%) and look
to re-enter in the next several months, (July - Sept).

We still sense that all of the markets could have a serious decline starting
in March or so and we need to either protect our current positions or look for
significant hedges, such as the above, to make monies if the correction
comes.

Our closing comments:
The Yellow Caution Flag is Flying.

As we always acknowledge, 'we could be wrong' and perhaps
others in the business which we respect and follow could be wrong, but, all
subscribers need to make a decision soon. Do you hold your positions,
sell, or at a minimum take some defense strategy as with the above
suggested ETFs.

We will stay in close touch as events unfold,

...."Get yourself positioned to take advantage of this once in a lifetime ride."

If you are not a current subscriber SIGN UP NOW

For current subscribers we greatly appreciate your business and trust you are taking advantage of your subscription to our services.

    Dudley

Dudley Pierce Baker - Owner/Editor - Guadalajara/Ajijic, Mexico
Bruce Ross - Webmaster and Administrative Assistant - Phoenix, USA

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