Gold Slips On Greece?

Gold slips on Greece may not be the truth behind the story, but it does make a good headline. The Greek meltdown will have long range implications for the world’s financial markets, but gold slips on Greece will be a footnote to the larger story.

The old adage is “buy the rumor and sell the news”.  This week it looks like gold has reversed that for the time being.  Everywhere that you look there is another story about how gold is dropping due to the socialist boondoggle that is the Greek financial situation.  Before we look at the chart for gold this week, take a quick look at this example from Reuters.

Gold drops as Greek woes take their toll

February 13, 2010 Reuters

Gold dropped Friday on a US dollar rally as worries for debt-stricken Greece and a surprise move by China to tighten money supply took a toll on sentiment.

For the week, the precious metal was 2 per cent higher, partially recovering from a two-day sell-off late last week driven by technical weakness and heightened fiscal fears for some European countries.

James Steel, chief commodities analyst at HSBC in New York, said gold held up relatively well against strong headwinds, and that the metal was poised to rise above $US1100 an ounce next week.

“The gold market has been hit by some very negative news – the Chinese monetary tightening and further unwinding of the carry trade related to uncertainty over Greece,” Steel said.

Spot gold was at $US1092.10 an ounce in late New York trade, against $US1095.85 late in New York on Thursday.

US gold futures for April delivery on the COMEX division of the New York Mercantile Exchange settled $US4.70 down at $US1090 an ounce.

China raised the level of reserves banks must hold for the second time this year, spooking global financial markets because of suggestions it may be reigning in demand.

Michael Widmer, an analyst at Bank of America-Merrill Lynch in London, said gold was coming under pressure as the US dollar appreciated broadly in reaction to the China news.

“We always see that when the markets sell off on the back of a macro event, gold sells off along with those,” he said.

The euro fell sharply against the US dollar on Friday as questions persisted about a rescue deal for Greece.

Strength in the US unit curbs gold’s appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

That was one example of the rumors, now lets look at the weekly chart for gold and see what really occurred.

Maybe Reuters was looking at the gold chart upside down.  That can happen! If this is what gold looks like when it is falling,  I hope it falls every week.  Seriously, this Greek story has been in the news for way too long under the wrong headlines. The headline should be “Greece Proves That Socialism Is A Total Failure!”

There is no doubt that big government and union control are the harbingers of financial and social ruin.  How many times will we have to see this before the people wake up and pare back the size of government and its unfunded mandates?  Greece is a prime example of government run amok and now the rumors abound that it could bring down the EU.

My Big Fat Greek Problem!

Greece is too big to fail! Does this sound familiar?  It should because it is a microcosm of the U.S. Government’s approach to the financial debacle of 2008.  When you are a crack addict, is the solution to your addiction more crack?  I think not.

The EU leaders met and mulled the problem of Greece but no immediate solutions popped to the fore.  Jochen Felsenheimer, a credit expert at Assenagon in Frankfurt said of the meeting, “They offered nothing,  it was just words without any concrete measures, hoping to buy time.”

The key point that has to be resolved is how will Greece meet its treaty obligations and cut its  budget deficit from 12.7% to 8.7%  this year during and economic downturn?  A sub heading to that question is, can they do it before before mid-year when Credit Suisse says they must or face default?

This appears to be a no win situation as Felsenheimer said,  “A Greek bail-out increases the risk of EMU break-up, because monetary union can only work if everybody sticks to the rules.” No bail out and Greece goes under and with a bailout the EU might go under.  Catch 22!

Merkel Lays Out The Reality of The Situation

German Chancellor Angela Merkel said this week, “There are rules, and these rules need to be adhered to.” These simple words are the key to the entire situation! Greece broke the rules and so it has to pay the price.  If it doesn’t, it will follow the path of the U.S. banks, which never payed the price for their mistakes and transferred the pain to the U.S. Taxpayer and ultimately to the U.S. dollar.  The Euro will suffer the same fate as the dollar if the EU steps in and floats the Greek debt on the Euro’s back.

Bloomberg lays out the case for a financial domino effect that puts the dollar’s safe haven role in question.

Fiat Currency Implosion In The Cards?

Fiat currencies at best are a Ponzi scheme, at their worst, they are the means for dictatorial confiscation of individual liberties under the guise of promoting the “common good”.  The gold standard will come to the world after this latest financial crisis comes to an end.  The only thing in doubt at this point is what will be left of our freedoms when the new system is put in place.

China is sitting on between $2 trillion and $3 trillion in excess reserves, depending on what source you go to.  Do you really think that they are going to let that go in a fiat currency collapse?  I think not!

There are three facts that play into how China will handle the coming fiat currency Armageddon:

Number One

China has the largest “long dollar” position in the world and they are not going to see it

evaporate when the dollar rolls over under the weight of reality!

Number Two

China wants to more gold in its coffers than it currently holds.

Number Three

It is always better to buy when prices are lower and China has the ability to

manipulate the market due to the size of its dollar position.

For China to replace the U.S. as the next super power they have to have the foresight to avoid the fiat currency collapse that is coming.  They have it and they will avoid it by acquiring more gold with which to underpin the Renminbi and insulate themselves from the financial chaos that will be the end of the fiat currency crisis that is approaching.

China will step in and buy gold when the price is right.  The only question is, at what price will they buy?  Gold is currently trading in a range that roughly runs between $1,025 and $1,100.  There is solid support at $1,000 and resistance at $1,100.  The longer gold consolidates here, the stronger the run up will be when it breaks out.

When it is announced that China has made a purchase, it will send gold up dramatically because the gold market is relatively small and much of the gold out there is privately held by investors who are not willing to give it up.  I can’t predict at what price they will buy, but buy they will, so it is imperative that you not be spooked out of your positions for any reason.

We are seeing a flood of doom and gloom articles predicting the end of the gold bull, which usually signals that gold is going to start its next run up!  Now is not the time to get cold feet, but rather, now is the time to add to both your physical gold and your gold stock positions.

As gold slips on Greece we just may be afforded the buying opportunity of a lifetime.

Till next time, good luck and good trading!

More Gold Market Analysis:

• E.U. Bailout, Solution Or Enabling?
• The Coming Gold Standard
• Gold Resilency
• Barbarians At The Gate!
• World Events and Gold