Every year, the dollar tends to rally as the December FED meeting gets closer and closer. It then sells off afterwards as traders take profits. This year has so far been no exception to this pattern. The only real question is how far up the dollar will go in its gold value, not whether it will go up.
With U.S. stocks, the situation is different. Stocks have been in a sideways range for the past two years when priced in gold. But with the passage of a final version of Trump’s tax cuts becoming more and more likely every day, they are now breaking out to new highs and do not appear to be stopping anytime soon. U.S. bonds are also breaking out, having just this past week invalidated the bearish triangle they had been trading in.
Technical analysis for U.S. dollar priced in gold.
The dollar has strong upward momentum. RSI is above 50, MACD is crossing over, and the price has broken above the 200 SMA.
Despite this upward momentum, the dollar is coming up to a strong point of resistance. It currently sits at 0.80 mAU ($1248.20/Troy Oz.). This point of resistance is at around the 0.82 mAU/USD level (0.00082 Troy Oz./$ or $1224.65/Troy oz.). So it doesn’t have far to go before it hits it.
The resistance consists of a trend-line going back to December of 2015. It is unlikely that this line will break. If it does break, we will almost certainly see a strong, long-term rally in the dollar.
What is more likely is that the price will rise to this level and then suddenly crash as dollar-owners take profits (or as gold-buyers become “bargain hunters,” to take a dollar-centric perspective). So if you are holding dollars, should you exchange them now for gold or wait to see if this line is hit first?
It really depends on what you think the FED is going to do on Wednesday. If the FED makes “hawkish” statements, the dollar will likely rally and then reverse. If the FED makes “dovish” statements, the dollar will probably start to fall right away. So if you think the FED is going to make hawkish statements, you might want to hold your dollars a little longer before getting rid of them.
As for me, I don’t know how to predict what the FED is going to say, so I’m currently 100% invested in gold with the money I have set aside for savings. But I think it would be completely reasonable to be at 50% right now given the strong upward momentum of the dollar. I would not consider going 100% USD unless the USD downtrend line I’ve identified here were to break. And I wouldn’t consider 50% USD to be unreasonable unless this upward momentum were to break.
Technical analysis for U.S. stocks priced in gold
The situation for U.S. stocks is completely different from that of the dollar itself. U.S. stocks ahve broken through a strong point of resistance and seem to be headed straight up. This rally could go on for a while.
In addition to having broken through the crucial two oz. per share line of resistance that goes back to December, 2015, U.S. stocks are also showing a MACD crossover and an RSI above 50. This implies that the rally will probably continue to be strong. So where can we expect the stock-market rally to pause?
Let’s see if we can find the last time prices were at this level.
The last time stocks were priced this high in gold terms was in 2007, just before the financial crises. At that time, they were in a range between 2.0-2.25 Troy Oz./share S & P 500. So we can expect 2.25 to offer resistance when hit. However, we have a long ways to go before we get there.
Technical analysis for U.S. bonds (long-term) priced in gold
Last week, the TLT bond fund was at a crucial juncture. It had hit the top of a bearish triangle it had been trading in. This week, it invalidated that triangle.
It remains to be seen whether it will stop at 0.1015 Troy Oz./share TLT or whether it will break through to the upside. If it does break to the upside, we can expect it to pause at 0.1040 and maybe even climb to 0.1110. This is something I’ll be watching closely over the next few weeks.
Technical analysis for Palladium priced in gold
Palladium had a huge rally and is still showing some evidence of overbought conditions in the sense that the price is far above the 50 SMA. However, MACD has fallen significantly and may be about to go into a positive crossover again. If this happens, it will be a sign that another leg up is coming. RSI is also strongly positive. So a good chance to buy may be coming soon.
Bitcoin priced in gold technical analysis
Prior to September, bitcoin was riding its 50-day SMA. However, it took off in October and started to launch into outer space.
For the first time, I am starting to see CNBC and Bloomberg talk about bitcoin every day. Marc Walton of Forex Mentor Pro is now teaching people to trade Bitcoin, even though he has never mentioned it in the past. GoldMoney is now selling Bitcoin despite telling everyone for months that it was a crazy investment. Matt Kratter at Trader University is now offering a class on how to trade Bitcoin. Everyone is jumping on the Bitcoin bandwagon.
I now believe the bitcoin bubble is going to get much bigger before it finally pops. There are just too many people that haven’t bought yet, either because they don’t have a cryptocurrency-broker account or because they haven’t been told by the media to buy enough times yet.
Bitcoin futures are launching on CBOE global markets this coming week and the CME will have bitcoin futures by Dec. 18th. This means a lot of institutional buyers will likely be borrowing money from banks to finance going long bitcoin. It also means that a Bitcoin ETF is probably just around the corner, which will allow people with stock-brokerage accounts like Fidelity, Etrade, Charles Schwab, etc. to buy bitcoin easily.
Eventually, I expect banks to run out of hedge funds to loan money to in order to buy bitcoin. At that point, they will start looking for regular, middle-class people to keep the bubble going. They may even start loaning money to bartenders and waitresses to buy bitcoin like they did with housing in the late 2000’s. At some point, the bubble will pop and everyone will lose their money. But in the meantime, the people who take advantage of this will probably get rich.
I am creating a new portfolio made up of 90% gold and 10% bitcoin. If bitcoin continues to rise in gold terms, I will reallocate my portfolio every three months by exchanging bitcoin for gold until the amount of bitcoin I have falls to 10% of my portfolio. I expect to accumulate a lot of gold this way, but I’ll keep you updated regardless of what happens.
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