-- Posted Wednesday, 25 February 2009 | Digg This Article
| Source: GoldSeek.com
April Gold: Open= 962.5 High=979.7 Low=945.20 Last= 953.8 -15.7
President Obama’s speech before Congress, and to the people of the United States, was all that supporters could ask for, strong, eloquent, and provided a balance of optimism and critiques of our country’s failures in the past eights years. Thankfully, Obama does remind us that things were worse in the 1930s, as many Democrats and media pundits would like us to believe that the worst times in America were 2000-2008. What did the markets think, however?
The last four hours of the trading session was a rather steep sell off, from around $977 down to $945, before settling higher. Interesting enough, despite all the rhetoric about massive government spending and possible Weimar inflation in the oven, Obama took a fairly hard stance on reducing the US budget deficit, promising to halve it by the end of his first term.
This would truly be a monumental task given the amount of spending being poured into the books. Obama spoke about tweaking certain programs in education, healthcare, and defense, but not wholehearted reform to reduce the cost structure of giants like Medicare and Social Security. Discretionary spending is hardly the backbone of government expenses, it is entitlement programs.
His vision of a streamlined government gets its first test very soon, as the House of Reps just passed its version of a $410 billion government spending bill, filled with nearly $8 billion worth of special project earmarks. One must remember that Obama has been all over the map when it comes to government wasteful spending, at times promising to cut government waste and other times saying earmarks amount for so little they are really unimportant to the debate. This House bill contains 8,500 special projects, which amounts to 19.5 earmarks for each and every member of the House.
If this bill stands as is, it undermines the credibility of the President. It is not as though he personally inserted earmarks but he has the choice whether to sign this legislation, or show the American people, and the global markets, that he is committed to restoring confidence in America once more by demanding it be re-written. Unfortunately, it is tempting to predict that Harry Reid and Nancy Pelosi will have their way with the Obama Administration, and those two are not a fiscally responsible duo.
For the time being, however, the gold bulls are tired after a nearly $200 per ounce run in the last month, and need prices to fall back to more supportive levels to attract buying interest again. With the Obama Administration talking somewhat tough on cutting the deficit and the Treasury announcing detailed plans on their ‘stress-test’ measures for the banks. One must remember that the markets responded very negatively to Treasury Secretary Geithner’s last major announcement, regarding the Treasury’s bailout plans, which seemingly lacked any details whatsoever. Today’s details were enough for bulls to throw in the towels for a second day in a row. Traders will digest some of this new information but for the moment, most of what has been driving gold higher is a bit stale currently.
Initial support comes in near today’s lows, from $940-$950, but the last consolidation range might be the more important downside target, from $900-$920. A 38.2% retracement of the mid-November to mid-February rally would be back to $895. A 50% retracement brings gold back to $860. Much will depend on a variety of factors, from inflation worries, to confidence in the Obama Administration, to even OPEC’s ability to support crude prices. Until the picture is clearer, it is important to remember that the trend is one’s friend and that trend is still up.
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-- Posted Wednesday, 25 February 2009 | Digg This Article | Source: GoldSeek.com
