SOVEREIGN DEBT CRISIS CONTINUES

Gold and oil are both up nicely today, with gold up $2, silver up $.08 and oil is up $.80. Meanwhile, the dollar is down 11 basis points and the Dow Industrials are down 3 points. The GDP report this morning shows the economy is improving. However, volume is light in all of the markets. GDP rose at a 5.9% annual rate, October through December, the fastest since the 3rd quarter of 2003. GDP expanded by 2.2% in the 3rd quarter of 2009. This was above the estimate that the government made last month. This caused some market participants to move out of the dollar and into gold as well as other metals. The lower dollar also tends to help dollar denominated assets like gold by making them less expense for purchasers using other currencies, which increases demand.

Myra Saefong reported on Dow Jones Wire Service that gold has been acting like a rebel lately and people are looking much more seriously at gold. It's notable that many traditional stock funds have been diversifying some of their holdings into gold, along with pension funds and other institutions. It is particularly notable that George Soros doubled his gold holding to $8.2 billion last year. He is now one of the largest holders of gold, along with John Paulsen, Bank of America, BlackRock and others.

Gold is now up nearly 5% from the month's low of $1,050 an ounce. This would seem to indicate that $1,000 is a clear floor under the market and that the upside is the path of least resistance. Another analyst said, "If gold and the dollar can decouple, that would hold important implications for the metal going forward." Dow Jones Wire Service said those implications are likely to be good for gold. It would mean that people are not only buying gold as a dollar hedge, but also as a safe haven asset and buying for the safe haven reasons is so heavy it is outweighing selling from U.S. dollar strength, said another analyst Sam Kirtley. The fact that gold has continued to hold above the $1,100 level, I think is also a very constructive sign, as do many analysts. Francis Bray, an analyst for Dow Jones Wire Service said the trading action yesterday, underpins the fresh bull mood for gold. He said a break through $1,115.10 is required to prompt further strength towards resistance at $1,121.70. Apparently, a break above that would be much more bullish and would lead to considerably higher levels. Just yesterday we saw another major analyst, Investec forecast gold will reach $1,300 an ounce within six months. This month Goldman Sachs forecast gold at $1,380. All of this is constructive and gives many the incentive to acquire gold and silver at these levels in anticipation of very significant gains ahead.

It is now reported that several of the major investment banks are under investigation for their credit default swaps. Some are saying that these investment banks maybe targeting sovereign nations such as Greece, attempting to topple the nation in an effort to cash in on bets made against the country's debt. This is typical of the "casino" environment among Wall Street tycoons that was described by Charlie Munger in a recent article.

There was a rumor yesterday that has not been confirmed, that China is in negotiations with the IMF to purchase the remaining gold that it has for sale. That would not surprise me. In fact, with the recent correction in gold, it would have given China the opportunity to negotiate a price similar to India's and I think that would be the impetus that was necessary to motivate China to pick up the IMF gold holdings.

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