In this holiday shortened week I would like to pose a question: Is gold putting in a bottom?  I think so and I will lay out a few of the reasons why in this post.  The first week of January 2010 will answer the question: Is gold putting in a bottom?

Is Gold Putting In A Bottom?

The markets are shortened for the holidays during the Christmas and New Years weeks and most, if not all, of the big traders are gone for the holidays and will not return until January 4th 2010.  Low volume can cause big swings in prices that do not necessarily reflect the underlying sentiment of the markets.  With that being said, I think that we may be witnessing the the bottom in the current gold correction.  If there is more downside to come the key numbers to look for are $1078 and $1045.

The dollar’s bounce should be ending shortly, if it hasn’t already, and that will light a fire under gold.  The dollar chart and the gold chart clearly show how gold is being viewed as currency by the markets.  When the dollar is up, gold is down and vice-versa.

The Dollar Bounce Is Just That, A Bounce!

The dollar’s fundamentals are just awful and it may be turning down in a hurry.  Gold is looking like it sees the dollar’s fall resuming and may have put in its bottom for this correction.

Is This The Bottom Of This Correction In Gold?

After the smoke and mirrors of the market action during the holidays is over, we will get a more accurate picture of whether this was the bottom for gold, or not.

How The Government Is Killing The Recovery And Putting a Foundation Under Gold For Its Move To and Through $1178!

During the next 12 months, the U.S. government will try to refinance $2 trillion  in short term debt, plus another $1.5 trillion of additional deficit spending.  That adds up to $3.5 trillion in debt that the government has to finance in 1 year!

The government debt ponzi-scheme is nearing the end game. At some point soon, the creditors are going to ask themselves:  Will I ever get my principle back?  The answer is clearly no, so they will leave the Treasury’s auctions without bidding.  When that happens, the dollar will plunge and gold will soar. It is not a what if scenario, but rather a when scenario.

Meanwhile the government rolls on, spending like there is no tomorrow. This story comes from the AP and it means the printing presses at the Treasury are working overtime!

Treasury removes cap for Fannie and Freddie aid

Fannie Mae and Freddie Mac receive unlimited future funds from taxpayers to stay afloat

By J.W. Elphinstone, AP Real Estate Writer , On Thursday December 24, 2009, 9:16 pm EST

NEW YORK (AP) — The government has handed its ATM card to beleaguered mortgage giants Fannie Mae and Freddie Mac.

The Treasury Department said Thursday it removed the $400 billion financial cap on the money it will provide to keep the companies afloat. Already, taxpayers have shelled out $111 billion to the pair, and a senior Treasury official said losses are not expected to exceed the government’s estimate this summer of $170 billion over 10 years.

Treasury Department officials said it will now use a flexible formula to ensure the two agencies can stand behind the billions of dollars in mortgage-backed securities they sell to investors. Under the formula, financial support would increase according to how much each firm loses in a quarter. The cap in place at the end of 2012 would apply thereafter.

By making the change before year-end, Treasury sidestepped the need for an OK from a bailout-weary Congress.

While most analysts say the companies are unlikely to use the full $400 billion, Treasury officials said they decided to lift the caps to eliminate any uncertainty among investors about the government’s commitments. But the timing of the announcement on a traditionally slow news day raised eyebrows…

The government’s philosophy of spending and regulating its way out of debt and into a healthy economy has never worked and will not work this time, even if we have the most enlightened leaders in history as their lap dog press keeps insisting.  Until the government gets serious about controlling deficits by reducing the size of government and getting out of the way of the economy, things will not improve.

The U.S. government is not the only offender as this next chart clearly shows.  It appears that the entire global socialist movement is romping down the same road.

Keep On Spending Your Way To Prosperity!

Gold will benefit from these insane policies until there is a complete return to sanity by governments around the world. No nation has ever prospered with a declining currency.  Even the messiah, The Community Organizer In Chief, can’t alter that fact!

Central banks are preparing for a currency crisis and a shift in the world’s reserve currency from the U.S. dollar to a basket of currencies, with gold included in the mix.  It is just a matter of time as this next piece illustrates.

Central banks keen to stock up on gold

European Central Bank cuts annual metal sale.

Suresh P. Iyengar Mumbai, Dec. 25

The European Central Bank (ECB) decision to downsize its annual gold sale in 2009 to 155 tonnes is expected to further boost yellow metal prices in 2010. The ECB has sold 400- 500 tonnes annually the last 10 years.

Of late, there is a tendency among central banks of many countries to hold a major portion of their reserves in gold. The emergence of new net buyers is expected to add strength to the bullish trend in the metal. China had acquired 450 tonnes, India 200 tonnes and Russia 120 tonnes from the International Monetary Fund this year.

The US government holds 8,133 tonnes of gold, the Euro Zone 10,800 tonnes and the IMF about 3,000 tonnes. Governments across the world own close to 30,000 tonnes.

Mr Ajay Mitra, Managing Director (India), World Gold Council (WGC), said that gold is more relevant as an asset going into 2010. Increasing signs of recovery have heightened inflation concerns suggesting a favourable environment for investment demand.

While the ECB has a high gold reserve, many emerging economies have very low stocks or no gold at all. “In aggregate, Asian countries hold only 2 per cent of their reserves in gold. Were the Asian central banks to increase their holdings by just one percentage point, they would need to buy about 1,000 tonnes. Official sector activity will be a key metric to watch in 2010,” said WGC.

Mr Navin Mathur, Associate Director, Angel Broking, said though gold prices depend on the rupee-dollar movement, gold sales by the central banks are always keenly watched as they impact sentiments. “With the gold price on a high, jewelery sales are likely to struggle with the exception of China, where the outlook remains cautiously positive,” said WGC.

In 2009, investment demand almost made up for the weakness in jewelery and industrial demand as investors bought large quantities of coins and bars, besides exchange traded funds and other products.

Stay the course and you will be richly rewarded.  This latest dip in the price of gold has produced  a golden opportunity to pick up both physical gold and silver bullion, and gold and silver stocks at reduced prices.  If gold hasn’t put in a bottom, it is getting very close. In the month of January 2010 we will have our answer to the question: Is gold putting in a bottom?

Till next time, good luck and good trading!

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