GOLD REACTS TO REDUCED DEFICIT ESTIMATES

Gold sold off heavily overnight as did silver. Silver was down about $.70 in early trading. Gold had been down as low as $1,085.20, but bounced back into positive territory. Silver is recovering but still not positive. The dollar is up 39 basis points at 78.58. The fact that gold could be up in the face of such a strong dollar index is impressive. Particularly when you consider oil is down $.92. Some analysts said that the earlier correction was due to technical factors with the February contract expiring and traders rolling over into April. Much of the correction in precious metals in general have to do with China instructing its banks to restrict lending in an effort to cool off its economy. The pull back in the industrial metals has affected the metal complex and commodities in general.

Gold also reacted to two other factors. First of all, the congressional budget office reduced its deficit estimates from $1.4 trillion to $1.35 trillion. On top of that the President is about to announce that he is going to freeze the Federal budget in a number of departments in an effort to get the deficits under control. So far there has been a lot of talk by one President after the next, but next to no action whatsoever. In fact, while they all promise to reduce the budget deficit and control spending, they actually do the opposite. The freeze President Obama will propose won't make a dent in the deficit.

The Case Schiller Home Price Index continued to fall in November. The indices showed prices in 10 major metropolitan areas fell 4.5% in November from a year earlier, while the index for the 20 major metropolitan areas dropped 5.3% on the year. However, for the first time in two years, some markets posted price increases. They included Dallas, Denver, San Diego and San Francisco. This may be the early indicator of some improvement in the housing market. However, some markets continue to see aggressive price declines. Las Vegas home prices fell 25%, and Phoenix fell 14%.

With gold showing exceptional strength in the face of the economic and political news, investors should be accumulating gold as a bargain buying opportunity. Yesterday, we commented that a number of analysts said gold is a bargain at these levels. The fact that gold could recover from a $10 loss early, to come back into positive territory is another signal that the market shows excellent strength at these levels. A breakout above $1,100 would be extremely constructive. Gold is near that level now.

Call Goldline today at 1-877-341-2646. Be sure to ask for the free information package, which contains a free American Advisor Newsletter -- a $25 value -- along with a free CD of the interview with Philip Klapwijk. Klapwijk has won the award for the best and most accurate forecast for precious metal assets last year. He has also won that award or been in the top five for many years. His consulting firm, GFMS does a wonderful job in providing analysis of these markets. Call Goldline now at 1-877-341-2646 to get the free information package.

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