Gold of Christmas Past?

Christmas eve, eve and everything is relatively calm.  The DOW is up 26 at 8,548, the NAS is up 10.7 at 1,543 and gold is trading down $5.90 at $841.70.  All of this is much adieu about nothing until the traders and the volume return after New Year’s day.

Oil continues its fall down the elevator shaft from it’s record high in July.  Oil has fallen 73% percent since hitting it’s high in July on speculation, not to mention the fear, that the ever spreading global economic slowdown will reduce demand.

“The falling price of oil should keep precious metals under pressure,”

Manqoba Madinane, a commodity analyst at Standard Bank Group Ltd. in Johannesburg, wrote in a report.

“Continued currency volatility today could further compromise precious metals as most investors may opt to watch the developments from the sidelines.”

Oil’s fall from grace has been particularly interesting to me.  As the price of oil has fallen the US drivers have not resumed their low cost driving habits.  It seems like the public is taking advantage of every situation that enables them to cut costs.

Back in June and July we heard Congressional calls for windfall profit taxes on the “evil” oil companies.   Where has that talk gone?  Those money grubbing, profiteering companies that control “the peoples resources” are not manipulating enough to stop oil’s 73% decline?  (That’s sarcasm, just in case any members of the press read this piece.)

Speaking of oil, I can’t help but laugh after hearing Tom Brokaw’s call to tax oil back up to $4.00 a gallon so that that the public would get the message that the days of the $20 dollar fill up are gone for good.  Isn’t it interesting that when oil goes up the companies that put all the money up front to discover and produce it are evil if they profit from that investment, but if the government, which produces nothing but regulation, raises the price by taxing it to the same level, they are beneficent and helping the peasants learn a valuable lesson. What a bunch of garbage.  I don’t know which is worse, the fact that those in the press and the government think this way or that the public allows them to get away with it.

Oil Prices Push Gold Down

Oil under pressure fuels the deflationary argument for this recession/depression.  Gold tracks the value of other commodities such as oil, but it also is a barometer of the condition of the currency in which it is traded.  Federal Reserve estimates puts the losses last year in real estate, stocks and mortgages at $7 trillion  from the U.S. economy alone.  Others estimate the losses to be $18 to $20 trillion. These losses have put downward pressure on gold which has been sold off to cover margin calls and to raise cash which has moved to the sidelines.

Add to that the $700 billion TARP fund bailout money, and the next administration’s $750 to a trillion dollar proposed stimulus package and you have a public that believes the financial crisis has been handled. That sentiment reduces the financial panic insurance aspect of gold adding more downward price pressure. Much of that selling has subsided now and it looks like the $800 to $850 trading range for gold should hold for the time being.  It is correct to conclude that gold is inexpensive at current prices and that the current price does not truly reflect market conditions.

On December 16th, the Fed announced  a further cut in interest rates to between zero and 0.25 percent. The Fed also stated in an untypically direct and firm manner,  “unlimited” support to buy assets from beleaguered institutions. This massive injection of debt and newly printed money will spawn a wave of inflation unlike anything we have ever witnessed in this country.  How long before we really start to feel this inflation is anyone’s guess, but I think it will be sooner rather than latter.

The Fed’s latest actions are beginning to make them look desperate.  Once the public gets a whiff of what is happening gold will begin it’s much delayed move to new highs. At some point all of this massive debt will have to be repaid by someone. Let me guess, how about the US taxpayer!

History repeats itself, albeit in a mutated form, and governments always devalue fiat currency. When President Roosevelt faced a depression in 1934 he first confiscated gold from every American, before he unilaterally devalued the U.S. dollar by 75 percent against gold.  With one signature President Roosevelt eliminated 75% of the dollar denominated debt of the U.S. Treasury.  Is President Elect Obama pondering the same move?  Only time will tell, but the odds seem to favor that scenario.

Any devaluation of the dollar would send the price of gold soaring as the only true store house of value.  Everything changes and yet everything remains the same.  Gold will remain “true” money and governments around the globe will be powerless to stop it.  Just as high taxes create “black markets”, gold confiscation will send the gold market under ground and to the moon in price.

This may not be the exact same gold of Christmas past, but it sure is close.

Merry Christmas and good luck and good trading!

Also Noteworthy:

• Fed Ushers in Gold Era
• George Soros & $1,500 Gold
• “Twas the Night Before Christmas”
• Gold Rallies VS. Major Currencies
• Silver: Poised To Move!

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