Originally published by Chamber of Merchants
Gold and the dollar are at the cusp of magnificent breakouts or disastrous reversals, depending on which side of the fence you’re on. Throw in a bit of uncertainty with POTUS Donald Trump and it could honestly go either way. So, what to do?
Introduction
I’m going to keep this weekend report fairly concise since the situation boils down to only one thing: Gold is at this very moment dancing on the edge of a knife, as is the dollar, as is the yen…as is the euro. All intermingled and intertwined, symbiotic and interdependent, the market presents itself in temporal equilibrium that will pass before most realise the moment had come.
As you can see above, the dollar is right on support. It tried to break below this level, however, it was rejected on the first go. For gold to rocket and I do mean rocket up to $1240-$1280, the dollar simply needs to break through support and accelerate in the the lower trading box with a failure to regain the area above the box. A single Trump tweet could do this.
However, while Donald Trump has a distaste for the strong dollar, he is a businessman. It’s hard to imagine the new leader of the “freeworld” destroying his own currency, which would cause an inflation and stagnation disaster. Additionally, the dollar benefits consumers at this level because imports are more affordable.
“Buy American…Hire American!”… All good and well, but you can’t buy from your own nation what you don’t produce from your nation. Therefore, my theory still maintains that the short-run trend for the dollar will be up. However, in the medium and long run, the dollar is likely to find lower support and range while gold will find higher support and range a few hundred dollars per ounce higher. Whoa! Hold on there cowboy/cowgirl/cowneutral gender person!
I don’t expect the dollar to collapse this very moment. The dollar’s days are numbered. I expect a double top or higher highs before the final demise sets in.
If Donald Trump’s policies are pro-USA then they will be pro-dollar, as funds scramble to buy their peace of the rally pie and the security that this nation provides. However this will all change as the economic indicators start casting doubt on the virility of Trump’s economic drive.
And we still have the bond yield issue which does not yet appear as a threat on the radar, however, could turn into something nasty and deadly for the markets.
You see, the above yields can certainly start to pressure gold again…temporarily… Remember, as I’ve written over and over again, the bond yields were determining the price level of gold.The yields had recently relaxed and so gold’s trade was overall a long trade (expecting the price to go up.)
If the bond yields go up, will expect a retracement in gold…temporarily, until the market realises that bond yields going up in an anaemic economy is…well…bad. Got gold?
Is it worth zipping in and out of the market?
Generally no. It makes more sense to stay put and ride through mini-corrections on the way up. If the gold price shoots through and up to $1240-$1280 then the sentiment of gold in every country’s exchange will experience a rally. However, if gold and the dollar move unfavorably for gold, then we could expect a knee-jerk sell off in the miners.
On a number of indicators on the weekly chart, gold has entered a bull-run phase… However, those triggers do not reflect intra-week movements which can be large swings.
So… with regard to gold… It is a coin flip at the moment…. My economic thinking says that it would be counterproductive to cause panic in the US dollar, therefore I am expecting policies that would be pro-dollar in their perception and affect.
I will add this:
The Dow Jones Industrial Average is creating a bullish rectangle… It is usually break to the upside… However, if it does break to the down side, we could see a market sell off which will benefit gold regardless of currencies.
I’m still sitting with 75% cash… This week’s price action determines whether or not I want to be part of this gold cycle or whether there will be any correction beyond the $1196 which has already been experienced.
The fundamentals are sound to me. Gold is the way to go. All the nations have debt…they don’t have money. So yes, long term, regardless of price, gold is the best store of value in my opinion.
However, timing it right is difficult and risky, yet very profitable when done well.
I’ll update once I see the trends for the week ahead.