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$1,000 Pushes Gold Back

February 23, 2009 Global Economy, Physical Gold, Politics 1 Comment

Gold crossed the $1,000 level on Friday and $1,000. pushes gold back today. Nothing goes straight up and down and the $1,000 level is proving to provide strong resistance as $1,000 pushes gold back!

The DOW starts off the week down 12 at 7,353, the NAS down 17 at1,423, the dollar is up .23 (.30%) at 86.82 and gold which popped through $1000 on Friday has succumbed to profit taking and is down $3.50 at $989.70. This is the 2nd try at piercing the $1,000 per ounce level, and as I have mentioned in the past, round numbers produce strong resistance and a round number the size of $1,000 per ounce produce really strong resistance. There will be more attempts at breaking and holding the $1,000 level and soon that number will be in the rear view mirror providing strong support.

What happened over the weekend that changed the sentiment on gold so quickly? We have already discussed the first simple reason, which is profit taking after nearly a $200 dollar rise in the price of gold over the past month. If this is a short pull back in the price of gold, the uptrend will resume quickly after the profit taking subsides. I tend to doubt that this will occur. $1,000 gold does not bode well for the currency and the political plans for salvaging the economy. Shorts will come in to take advantage of this bout of profit taking and try to push gold as low as they can before the next economic shoe drops. There is money to be made and the shorts have a lot to recoup after last month’s surge in the price of gold.

Is The Euro About To Get A Boost?

The bad news last week about the condition of European banks got the markets in a dither, but now Reuters is reporting that there is talk about creating a” Eurozone Bond”.

The Chairman of euro zone finance ministers Jean-Claude Juncker has proposed that the common euro zone bond should cover the first 40 percent of the overall euro zone government debt, sources familiar with the work of the Eurogroup said.This would be senior debt, guaranteed by the whole euro area, which now has 16 members. Anything above the 40 percent would be junior debt that would be issued by the individual governments.

The junior debt would most likely be more costly for the government to issue, therefore encouraging a reduction of debt towards the common euro zone level of 40 percent, sources said.

If agreed on, common euro zone bonds would in a matter of a few years create a highly liquid bond market of some 4 trillion euros which could successfully compete with a similar size U.S. treasuries market for large investors like China.”

If this were to become a reality there would be major competition for Chinese money that would put considerable pressure on the U.S. dollar. It could lead to the Euro bidding for the reserve currency role that the U.S. dollar currently holds. Germany, which already has about 1 Trillion euros worth of German bonds issued could stop this plan dead in the water if it feels it would hinder their existing bond values. This plan has a long way to go and many hurdles to clear before it becomes reality, but the rumor is enough to push sentiment against gold. Time will tell on this one, but I mention it because it bears watching.

On the U.S. banking front, the Wall Street Journal is reporting this about Citibank.

“Citigroup is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.

While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup’s common stock. Bank executives hope the stake will be closer to 25%, these people said.

Any such move would give federal officials far greater influence over one of the world’s largest financial institutions. The proposal was made by Citigroup to its regulators.”

I can just see Barney Frank and Chris Dodd licking their chops over this one. This opens the door for them to push for nationalization. Power corrupts and absolute power corrupts absolutely! At the risk of being repetitive, why are we letting the people that caused the banking and housing problems be in charge of fixing the problems? Unfortunately, the American people are getting exactly what they deserve for voting this bag of snakes into office. We are living in an era of “predatory legislators” and we cannot expect different results until we elect people who seek election to serve rather than empower themselves and their supporters. Enough said!

We will have to wait and see how long this reaction to the $1,000 level takes to play out and keep a close watch on both the price of gold and the gold stocks. There will be good opportunities to buy both physical gold (and silver) and gold stocks as this correction plays out.

Till next time, good luck and good trading!