Deepening Financial Crisis

March 2, 2009 Gold Stocks, Physical Gold, Politics No Comments

A.I.G.’s numbers signal a deepening financial crisis as they post a $61.66 billion loss for the quarter. As more and more people become aware of the deepening financial crisis, gold will be the beneficiary. It is not what we want, but it will happen as this financial crisis deepens.

All of gold’s gains before the session opened vanished with the opening bell. After trading almost to $960 per ounce over night, the price pared to just up $6.90 by the time the NY market opened and swiftly slid downhill from there. This appears to be another, “throw the baby out with the bathwater” reaction to more bad news that came out today regarding A.I.G.

Let’s take a quick snapshot of the markets before we turn to the continuing A.I.G. debacle. The DOW blew through 7,000 like it wasn’t even there, down 154 at 6,908, the NAS down 22 at 1,355, the dollar is welcoming the panic sellers that are exiting the DOW and the NAS, up .53 (.69%) at 88.70. Is the dollar getting toppy or what! While all this is going on, gold has crawled back onto the plus side, up $.70 at $940.30. Gold had been as low as the mid $930′s shortly after the markets opened.

aig headquarters ny Deepening Financial Crisis

Soon to be U.S. A.I.G.?

The Wall Street Journal is reporting,

“The federal government has revamped its rescue package to American International Group and will provide the troubled company another $30 billion, with the Treasury saying AIG continues “to face significant challenges.”

This announcement comes as the insurance giant posted a $61.66 billion net loss for the fourth quarter. These numbers are incredible. A.I.G. is unable to find buyers for parts of the company that it hoped to sell in order to repay the government for lending it money the first time, so the government throws another $30 billion down the hole try to keep it afloat. That’s roughly $180 billion into A.I.G. which puts the government’s stake in the business at, or near, 80%. There will be more money sent down that “black hole” in the future.

Gold continues to regroup having suffered 5 straight days of loses since it punched through the $1000 dollar mark at the end of the week of February 20th. The financial crisis and the inept leadership of the Fed and the U.S. government have all come together at the same time to put a firm base of support under gold in the $900 range as it consolidates for the next push to and possibly through the $1000 level. Gold has become the go to investment because in an environment where everyone is seeking safety and quality, gold is both. While global governments throw more debt at a problem that was created by debt, gold has been gaining in value against all the major world currencies. The U.S. Dollar is no longer the safe haven it once was. Gold is slowly taking over that mantel from the dollar.

Since the beginning of the financial crisis, $14 trillion has been poured into the financial system and yet, it has not helped and the financial system continues to crumble around us. Gold is the one thing out there that is not tied to someones debt. It truly is the quality that the world’s smart investors are fleeing to. This trend will continue as the economy continues it’s downward spiral. After this short consolidation in gold, the price will move back up and try to leave $1000 behind. By the end of 2009, gold will be substantially higher than $1000 and setting it’s sights on new highs.

Bloomberg has reported that gold could pass $2000 per ounce as the economy worsens and Citigroup has predicted gold could reach $2000 by years end. Bloomberg has credibility, but with Citigroup’s stock trading at around 1.50 a share, I will discount their opinion. They will soon be the next acquisition of the U.S. government’s rush to nationalize the banking system. It’s funny, when the government says they have no intention if nationalizing the banking industry, you know that is exactly what they will do. When the “stress testing” starts in a couple of weeks we will have a more complete list of the banks that the government intends to nationalize.

The word is getting out on how bad things are and who is responsible. The general public in the U.S. is much smarter than the bureaucrats give them credit for. Unfortunately they are not as organized as the government drones but that too is beginning to change. A ground swell is forming as more and more comes out on the “stimulus package”. When economic conditions work their way into musical lyrics, you can be pretty sure that the “common” man is paying attention to what is going on.

Check out my piece that posted on January 20th, titled “I Want My Bailout Money” and listen to Michael Adams’ song of the same title. It is clear that he gets it. Read the lyrics from John Rich’s new song “They’re Shutting Detroit Down” and you will begin to get the picture.

“They’re out there losing millions and it’s up to me and you to come running to the rescue. Well pardon me if I don’t shed a tear/they’re selling make believe and we don’t buy that here/cause in the real world they’re shutting Detroit down, while the boss man takes his bonus pay and jets on out of town/DC’s paying out the bankers as the farmers auction ground/while they’re living it up on Wall Street in that New York City town, here in the real world they’re shutting Detroit down.

The word is definitely getting out.

The current consolidation in the price of gold is the perfect opportunity to buy gold and gold stocks. The global financial crisis is accelerating and gold will be the “last man standing” in the end. These are truly “golden” opportunities that we should be taking advantage of.

Till next time, good luck and good trading!