-- Posted Tuesday, 24 February 2009 | Digg This Article
| Source: GoldSeek.com
April Gold: Open= 992.1 High=997.0 Low=960.2 Last= 964.8 -30.2
Dreary economic news greeted traders this morning, with reports of a 4th quarter $60 billion loss by AIG, a slump in Consumer Confidence (lowest level since 1967), and a continuing slump in housing prices. Even lower end retailers, like Target, are facing heat, with profits falling 41% in the 4th quarter and according to Bloomberg, it is also setting aside money for unpaid credit-card balances and is cutting 9 percent of its headquarter staff.
However, despite this dim news, the stock markets have been rallying since early this morning, with the Dow up over 200 points heading into the close. Traders may be inclined to believe that President Obama could unveil new plans during tonight’s address in front of both houses of Congress. There are no rumors or suggestions that he may do so but finding another explanation for this market rally is futile.
Gold prices slid under constant pressure today, steady falling about $30 per ounce in a two hour window and prices have remained near the lower end of the trading range the rest of the day. The bullish consensus for gold last week was above 80%, and while that level is not extreme, it should certainly give traders caution. A round of profit taking to shore up some of the technical figures would be an opportunity to find lower levels of support.
Gold bugs are likely unsatisfied that the US dollar has held up very well in the face of this economic recession. Despite the country’s many troubling fiscal issues, there are many other nations facing similar, if not worse economic duress. GDP growth in the 4th quarter shrank by an estimated 1% in the US, far better than the 3.3% contraction in Japan and a respective 2.1% and 1.5% negative growth in Germany and the Euro zone. Yet the utter lack on confidence in any one major currency is driving investors to gold, whom see a risk in holding large amounts of paper debt; i.e. currency.
For the lone sake of flight to quality, gold is likely to remain sought after until a bevy of potential fears are laid to rest. One fear is potential massive inflation in the future as trillions of new units of value are printed into the markets. Another fear is the debasement of the dollar. From time to time, currencies do collapse, as we’ve seen in Iceland in 2008. Luckily, the impact was rather limited due to the small size of the nation. Were that situation played out for a second time in a larger European nation, say in Eastern Europe, it would not be unreasonable to hear loud cries for protectionism in Western Europe. Milton Friedman once said that the Euro would not survive its first recession and that thought is plausible given the right conditions. Gold bugs would find solace in that occurrence.
Barring that explosive scenario, gold will remain well supported based on the possibility of a number of scenarios playing out. While many applaud President Obama for taking bold action, it is the panicked action by the government which causes investors to be nervous. There appears to be no grounding game plan other than to plug obvious holes with money and hope the bleeding stops. The Keynesian theory behind the stimulus plan is iffy to begin with and so sadly watering down in the final version of the plan that it would provide little stimulus even if the theory proved correct. It’s possible that zombie businesses are being created out of GM, Chrysler, AIG, and others. They cannot survive without government money, but they cannot attract private capital while taking the government money. All the while, the balance sheet of the US government becomes more suspect by the quarter.
The US dollar may be the winner by default for the time being but that is not a confident position to hold. Investors feels much more confident with a heavy gold bar tucked in the palm of their vault.
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-- Posted Tuesday, 24 February 2009 | Digg This Article | Source: GoldSeek.com
