As we approach the last holiday week of 2012, I can't help but to scratch my head and wonder why the price of gold and silver is at these levels when everything around us seems to be falling apart at the seams.
According to Marketwatch.com, the Treasury Department soon will begin making accounting moves so that the United States can put off hitting its debt ceiling at the end of the month, Treasury Secretary Timothy Geithner said Wednesday. In a letter to congressional leaders, Geithner said the government would hit the $16.4 trillion debt ceiling on December 31 unless he authorized the extraordinary measures.
The Budget Control Act, a result of the contentious 2011 debt ceiling debate, increased the debt limit by $2.1 trillion, but failed to rein in the key driver of spending and debt: entitlement spending. Congress first placed a statutory limit on the national debt in 1917, in the Second Liberty Bond Act. It has been raised 13 times since 2001.
Unless entitlements are reformed, spending on Medicare, Medicaid, and Social Security will drive deficits to catastrophic levels. While recent budget deficits have reached unprecedented levels, future deficits will be dramatically worse.
Many European countries, like Greece and Italy, are suffering financial or budget crises as a result of mounting debt. Countries such as Spain are not far behind. Unless the U.S. controls spending, America's debt will surpass those of troubled nations, leading to similar economic woes.
All the uncertainty continues to support the precious metals not only as a safe heaven or insurance policy against fiat currency imploding but as a way to maintain purchasing power. As history has shown us, and with Argentina recently getting an extension on their debt obligations to the U.S. or default by March 2013, it's very reminiscent of previous defaults like Mexico in the early 80's.
The question remains, will the U.S reach the crisis levels of debt like Greece or Argentina?
Let's take a look at gold and silver prices and see what the technical picture looks like for tomorrow's (Thursday) trading ranges.
The February electronic gold contract closed at $1660. The market closing below the 40 day MA is confirmation that the trend momentum remains bearish. With the market closing above the VC Weekly Price Momentum Indicator of $1659, it confirms that the price momentum is bullish. Look to take some profits, if long, as we reach the $1669 and $1678 levels during the week. Buy corrections at the $1651 and $1642 levels to cover shorts and go long on a weekly reversal stop. If long, use the $1642 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).
The silver contract closed at $29.90. The market closing below the 40 MA is confirmation that the trend momentum is bearish. With the market closing below the VC Weekly Price Momentum Indicator of $30.06, it confirms that the price momentum is bearish. Look to take some profits, if long, as we reach the $30.24 and $30.45 levels during the week. Buy corrections at the $29.83 to $29.64 levels to cover shorts and go long on a weekly reversal stop. If long, use the $29.64 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.