Dear CIGAs,

News that the American automakers would gain access to the government’s political slush fund, also known in some circles as the TARP – Troubled Asset Relief Program – sent the Dollar skyward and was initially good for a pop in the US equity futures. Yes sireee – now that all those concessions have been wrung out of the unions to enable Ford, GM and Chrysler to be competitive (excuse me – my alarm clock  just went off and I woke up from my dream) – we can expect to see these companies swimming in profits once again. Right along that line Ford announced today that it was planning on bringing a line of hybrids, battery-hybrids and electric cars to production by 2012 (down here we call those things Go-Carts). Nice timing guys – gasoline prices are headed to $1.00 gallon and Detroit announces a line of battery powered cars. Yep – that should prove to be a real winner. Way to think outside the box!

While some are no doubt cheering the news and applauding the “bold and daring” political decision to back the loans that the American Automobile industry is screaming for, personally, I view it as a sad day in American capitalism. It seems to me that what we have no come down to in this nation is the rewarding of failure and mediocrity. We all know that car sales have slowed for all the entire automotive industry yet we do not see Honda or Toyota on their knees begging the political masters for money to keep them in existence in current form. I suspect that from this point forward, American industry will be spending far more money on staffing their lobbyists instead of research and development. And why shouldn’t they? It works. I should point out herein the interest of fairness that to Ford’s credit, they said that they do not need any short term financial assistance but are concerned what a possible failure of GM and Chrysler would do to them.

Perhaps after the unions have killed the goose that laid their golden egg the US auto industry can go the way of the US steel industry which also could not compete with foreign competition because of the outrageous burdens imposed upon it by the unions. I read the other day that Chrysler was going to shutter its plants for a month in order to reduce costs – yet did you know that the unionized workers will still receive a full 95% of their regular pay over that period. How would you like to get an extra month’s vacation and still get paid nearly all of your salary for sitting on your duff? And Detroit wonders why it cannot compete? Mark my words – we have not seen the last of the US automotive CEO’s begging for money from Washington. I suspect that we will also see them testifying before Congress about high medical insurance costs for their workers and the need to offload that expense onto the US taxpayers as well. My guttural response to all this is to say let’s just all go back to riding horses and a pox on their entire house.

All of these companies could go into Chapter 11 and reorganize, get out from under the ridiculous burdens imposed upon them by the unions, and begin producing vehicles that Americans are clamoring to buy and emerge meaner, leaner and stronger but in today’s climate that might mean some pain and hardship for a period of time – something which our noble statesmen in Washington cannot stomach as having occurred on their watch. Instead we get corporate welfare run amok and an unholy alliance between business and politicians. Please do not misunderstand – I want the US auto industry to succeed – but not at the cost of subsidizing stupidity.

My rant about all this is to state that if somehow this is all being viewed as Dollar friendly, such views are better likened to whistling past a graveyard in the hopes that one can convince themselves how brave and fearless that they are when in reality fear is clawing at your belly. Where does it all end? What industry will be next in line for goodies? Don’t forget we have not even taken into account some of the various states that are now officially bankrupt and are clamoring for a piece of the pie. The federal bailouts and loan guarantees might be one thing if the US were a creditor nation and possessed a large pool of savings. It has neither but is hopelessly in debt and merely compounding its predicament further by giving away money which it does not have, borrowing those sums from China. It would seem that Washington has become nothing but a cash cow milking future generations of Americans who are not yet even born for they are the ones that will be paying for this in one way or the other.

With the short-sighted ninnies forgetting the very reasons that they sold off the Dollar beginning a few days ago, gold was promptly trashed on the Comex moving further away from the $880 level and dropping until it uncovers the zone in which buyers become active. We are now probing for support so that the lines can be drawn on the chart to establish some sort of trading range. Right now it looks as if $830 is comfortable for buyers. That level corresponds precisely with the former swing high made back in November which at the time served to blunt upward momentum. To see it functioning as support is therefore encouraging as the reverse polarity effect kicks in (former resistance zones become support zones and vice versa for technical analysis purposes). Should this level be unable to hold, there is further support near the $820 level and more substantial support below that near the $805 level. Upside resistance centered around the $880 level will need to give way for gold to run to the next resistance level above that at $900.With liquidity rapidly drying up volatility should be expected to be quite high. Many traders are already gone for the holidays or will be leaving this afternoon not returning until the first of the New Year.

On the delivery front, another 36 deliveries were posted today bringing the total for December to 1.32 million ounces. Registered gold is at 2.83 million as of yesterday. Open interest in the December is moving down as the month comes to an end and of yesterday stood at 370 contracts remaining.

It should be noted that the mining shares are holding relatively well today – something which should not exactly inspire a great deal of confidence among the paper gold shorts at the Comex. The XAU in particular seems very reluctant to move much lower today. It is finding support right at its 10 day moving average. That average, the 20 day and the 40 day are all now moving solidly higher and are above the 50 day – a bullish technical picture. I would ideally like the see the XAU get back above the 100 day to put another nail in the bears’ coffin.

Crude oil continues to plummet and does indeed look like it is going to $30 as expected. The February contract has been reluctant to follow January lower as traders think that the OPEC announced production cuts might work but call me skeptical. That is one of the reasons we are seeing some weakness in gold by the way. When crude moves lower most of the rest of the commodity sector tends to move lower with it and that emboldens the gold bears and unnerves some of the weaker longs.

The Dollar bounce took it back above the 100 day moving average on the continuous daily chart but it is still well below the 50 day moving average up near the 8540. Trying to read too much into technical chart action at this time of year becomes increasingly suspect since so many firms and players are closing down positions, booking profits or taking losses and calling it quits until next year. The first full week of trading in the New Year is far more significant than what happens over the next couple of weeks mainly because the low volume and lack of liquidity exaggerates everything, both on the upside and the downside. Should the Dollar be able to muster enough year end short-covering related buying to take it back up near 84.50 – 85.00 I would expect to see sellers emerging once again.

Bonds are finally, showing a bit of weakness if a setback in price of such “dinkiness” could be considered weakness. I still marvel that anyone in their right mind would want to own long term US government debt as a “safe haven”…

Click chart to enlarge today’s action in Gold as of 12:30pm CDT with commentary from Trader Dan Norcini