My long time readers and followers know my opinion on Gold , Silver , Bitcoin and other commodities /hard assets. You want to be in them due to the approaching confidence crisis in government, central banks and the fiat money. All of which are occurring right NOW. The trade is to get out of fiat, because the currency war between central banks means that they will all try to weaken their currencies in order to boost the economy and cheapen the debt. A race to the bottom, and we see this with the European Central Bank who have been trying to weaken the Euro but cannot due to the weakening US Dollar. More extreme measures (ie: interest rate cuts deeper into the negative) are coming.
This is primarily my reason for why Bitcoin is spiking. Yes, it can be due to people front running a central bank digital currency ( CBDC ), or perhaps a way to chase yield and return away from the stock markets, but I believe this is rather a move out of fiat. To me, the new highs in Bitcoin are a warning sign.
Gold is regarded as a safe haven asset. Many classify it as a commodity. But to me, and many others, Gold is a currency. In Classical Economics theory, Gold is a currency. Gold is money. Gold has been money in any government regime. Early last year, Gold made new highs against fiat’s like the Yen, the Loonie, the Aussie Dollar, the Euro , the Pound, the Lira and many others (way BEFORE Covid was ever a thing). This was the most important sign for us versed in classical economists. It indicated that inflation , and crazy monetary policy was coming. Something was coming down the pipeline which would force central banks to cut rates back to 0, and resume Quantitative Easing.
I remain very excited for Gold and other commodities in the long term. I want to share with you some technicals on Gold…which when last time occurred, led to a 180% plus move!
Now first things first, I have to give credit where credit is due. My technical level is similar to that of many traders, but Christopher Aaron from iGold Advisor in his latest Youtube video, highlighted the fact that this pattern happened in the past and led to a 180% plus move. Thanks Chris, and unfortunately we cannot meet in person at The Vancouver Resource Investment Conference 2021, to further develop our outlook for the future (and technical patterns!) like we have in the past two conferences.
So let’s take a look at the current weekly set up in Gold.
A few major points to discuss here. First and first most, this 1800 zone is a MAJOR flip zone ( an area that has been both support and resistance ). My arrows indicate how many times price has tested this zone. In my books, any level with more than 3 touches is super important and deserves your full attention.
Now look to the recent price action to the right.
Price has pulled back to retest the 1800 zone. Buyers have stepped in and held. There are two very exciting things here which will make sense when we look at the similar pattern in a different year.
Firstly, the retest is after Gold made all time record highs. Yes, the 1880 price zone technically is the retest which failed, but the 1800 flip zone is more important as mentioned above.
Secondly, the pattern we are developing is known as a wedge pattern. Notice how price respects the downtrend line. This pattern is bullish because it indicates price is COILING and ready to make a move. As long as we remain above the 1800 zone on the weekly chart, the probability for a breakout is high.
So how do we play this? For a better probability trade, it is prudent to wait for a weekly close out of the wedge . Once again, because this is a weekly chart, it may take sometime for price to breakout, but this triggers the pattern. Just a reminder: patience is probably the most important characteristic in a successful trader/investor.
The alternative play is entering positions right now frontrunning the breakout. Your risk vs reward is better, but you have to accept the risk that price could do nothing, or even break below failing to trigger the bullish run. Taking this approach would require a stop loss below 1762, below the retest of our major flip zone. A zone which MUST hold for our bullish 2021 scenario.
In summary: A breakout above previous record highs, retest of a major flip zone, and a wedge pattern. Looking back in the Gold markets price history, we have a set up very similar. Get excited everyone.
The chart above is the weekly chart of Gold back in 2007-2008. So during that time, Gold did make a new record high before pulling back to retest a flip zone.
Notice the multiple touches.
Finally, notice the retest, and how a similar wedge pattern was created. All the criteria we see in our current weekly chart.
The fundamental backdrop was similar: central bank money printing and the cutting of interest rates, plus major (crazy?) fiscal policy. In fact just yesterday, President Trump agreed to sign the $900 Billion Covid Stimulus, with Congress voting on increasing the $600 checks to $2000 in the near future. Money printing and spending will not stop. It cannot stop.
Once the wedge broke back in 2008 Gold made a 182% move (measured from the bottoming of the flip zone retest to previous record highs at 1920) using our ruler function on Tradingview.
Some people like to downplay technical analysis , but the truth is that markets have a pattern to them and flow in cycles. What I like to call waves of uptrends, ranges and downtrends. Our job is just to find these cycles and wait for the shift. There is much more to do with psychology in charts, and an imperfect information environment, but this would go beyond the scope of this post. The truth is technical analysis works. And it works really well.
For the Gold Bulls, this pattern is set to repeat again.
Mapping 182% from the current support retest at 1762 to new highs…the Gold price goes well above $3000…actually much closer to $5000.
In summary: wedge pattern with a retest of previous record highs holding as support. If this wedge breaks, we are set to repeat a major percentage move with the same fundamental backdrop! I would say much more extreme this time around! The confidence crisis begins! The trade out of fiat will be the theme of 2021.
Oh and for my Silver Bulls how could I forget you (me being probably the biggest Silver bull)! When Gold made this large percentage move post 2008… Silver went from $15 to $50. New record highs incoming for Silver!