(Originally published on November 19, 2016 at goldtradingmastery.wordpress.com)
The bond-selling mania of last week continued all throughout this week as the markets continue to believe that the Fed will not monetize Trump’s stimulus plan. As a result, interest rates have climbed and the dollar has strengthened.
The 30-year bond now yields 3% in nominal terms, up 40 basis points in the past two weeks. And a 30-year fixed-rate mortgage is now almost 4%.
$100 is now worth 2.573 grams of gold or 82.8 mAU, up from 2.444 grams or 0.781 mAU before the election.
If you are trying to accumulate savings, now is a good time to hold USD cash instead of gold. The market is returning to a temporary period of “normalcy” in which traditional investing strategies based on income will be more profitable than usual.
In another six months to a year, this period should come to an end. Either inflation will pick up faster than anticipated or the rising bond yields will cause the economy to collapse and the Fed to start doing QE again. In the meantime, everyone believes that real interest rates are going to rise. So don’t fight the markets.
If you’ve already got some gold holdings, however, now is a good time to take a portion of your gold and look for opportunities to buy dollars with it. This will allow you to sell the dollars back later for more gold.
So what’s going on with the dollar right now?
It’s getting close to 0.833 mAU/USD ($1200/oz.), which is a strong line of resistance from earlier in the year. This line was first broken to the downside in February, and the price has since then attempted three times to regain its lost ground by pushing up through this line again. This is now the fourth attempt.
This may be the time that it finally breaks through. However, the price is far above the 21, 10, 100, and 200 EMAs, which means that many buyers are likely to sit out the fight until the price returns to a reasonable level. So it is more likely that the dollar is about to fall in this coming week, before regrouping to move higher again.
If it does fall, this will provide an opportunity to buy the dollar.
Normally, I would want to wait until the price bounces off the EMAs at least once before taking a shot. But in this case, it’s moving so quickly that I’m pretty sure the trend is going to continue. So I think there’s minimal risk in buying the dollar (selling gold) if the price pulls back to the EMAs during the week.
If you want to minimize risk even further, you can look for one these three candlestick formations before selling part of your gold holdings. I’ve included some free articles from other sites that do a good job explaining how to spot them.
- Railroad tracks – http://www.forexindicator.org/forex-candlestick-reversal-pattern-tutorial-1-railway-track.html
- Bullish/Bearish Engulfing – http://www.candlestickforum.com/PPF/Parameters/12_61_/candlestick.asp
- Pin Bar – http://pinbarstrategy.com/introduction-to-the-pin-bar-trading-strategy/
As always, use stop-losses and the Fotis Risk Management Tool to make sure that you don’t risk too much of your gold. You never know if investors will suddenly come to their senses and realize that the government and private sector can’t afford high interest rates forever.
So what about the stock market?
The price of the S & P 500 has already broken through a strong point of resistance at about 1.75 oz. Of course, if the dollar falls, this will eventually bring down the stock market a little. But it might go up another week or two before that happens. I don’t see an opportunity to get stocks cheaply just yet.
And what about bonds?
The 30-year Treasury attempted to break through a line of support at 0.126 oz. over the past week and a half. It failed and is now consolidating in order to try again. I suspect it will break through next time. If you have any bonds, now is a good time to sell. Otherwise, it’s a good idea to just leave this alone.
See you next week.