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The market is caught in limbo as Democrats fight about the agreement between Obama and Republicans to extend the Bush era tax cuts.
Politico reports that the Democrats were livid in a closed door caucus meeting Tuesday night. They couldn’t believe the president had given in on higher taxes for those making over $200,000 and couples with incomes over $250,000.
The president had two officials along with two senators and two representatives from each party work out the tax agreement. Vice President Joe Biden is meeting with Democratic congressmen today.
Rep. Chris Van Hollen (D-MD) was the House Democratic negotiator. He said, “Our guys got taken to the cleaners.” This was in reference to the estate tax or “death tax” provision. Estate taxes would go to 35% with a $5 million exemption. Rep. Gary Ackerman (D-NY) said, “I disagree that we didn’t get anything. We got screwed.”
Reuter’s reports that Senate Majority Leader Harry Reid (D-NV) said, “It’s further along than most people think, I don’t think there is a great deal more to be done.” Reid said the proposal could move quickly in the Senate.
The uncertainty over the tax extensions is giving us a chance to get on board the precious metals train. If you are like many of us and have watched gold and silver move higher but just couldn’t pull the trigger, it is time.
We wrote last spring that Silver would be the" Trade of the Year.” I was convinced then, but the “conservative” side of me wanted to buy at the absolute bottom. When it started higher, I wanted a pull back. When it pulled back, I wanted a bigger dip.
We traded AGQ, the Silver Ultra ETF, a few times in the summer and made money ... but I let the train leave the station when the Fed poured rocket fuel in the precious metals market. Make no mistake, QE2 is rocket fuel for all commodities, especially precious metals.
Back in August, precious metals started their big climb. AGQ was up 179% two days ago! A crazy thing happened this fall. Initially the dollar fell after the Fed announced they were going to buy more treasuries. This was to be expected, because more dollars means they are worth less.
In October and November the eurozone credit crises heated up and the dollar started strengthening. Normally, this would mean precious metals would go down ... but they didn’t. Gold and silver kept climbing.
Evidently, overseas investors wanted gold and silver if their currencies were going in the trash can. Then last week, we heard China opened a gold ETF for traders in the middle kingdom.
If you can’t buy the real thing, why not buy an ETF that owns gold, silver, miners, or an ETF that owns all three? I like the idea of this being available to Chinese investors. We have arrived at a crossroads where precious metals have unhooked from the value of the dollar, the Fed and now European Central Bank are committed to print money and buy dodgy debt.
The current tax extension debate in Washington has knocked down the price of Gold and Silver in the last two days. Traders are sitting on big gains, and will sell this year if the deal falls apart, because that will mean taxes will be higher on income next year. Once the tax rates are extended, the selling pressure from this uncertainty will disappear. How many pullbacks have you missed this year? They may have a little further to fall, but as soon as the tax deal is approved, look for a move higher.
All are close or below the 23.6% Fibonacci retracement of the climb since the middle of August. We have been here three times in the last three months. Every time was an opportunity to load up for the next leg up.
Consider GLD, SLV or AGQ, the Ultra long silver ETF. You may want to open a half position, and average down if there is another leg down. We can’t predict the political debate, but expect approval to come soon and new record highs.

Disclosure: I am long AGQ

Source: Amidst Uncertainty Over Tax Deal, All Aboard the Precious Metals Train