The month of November was a bit of a roller coaster for metals bulls, as price appeared to breakout, only to reverse on vaccine news and become extremely oversold by mid-December. All the more frustrating was the continued sell-off in the US dollar, which many expected to spark the next leg higher in metals prices, but new lows in the dollar coincided with multi-month bottoms in metals. Meanwhile, all attention has since returned to bitcoin, which broke out to all-time highs while metals remained in consolidation mode. So, where are we now?
The thesis that I outlined in my post on October 14th remains the same: Metals up, Equities Up, Dollar down. The expectation then, as now, is for the 2021 reflation/inflation trade. To be clear, this expectation is not based on any personal macro-opinion; it is based on how I see price reacting to this general market consensus. The market can be wrong, and if it is, and inflation expectations are overblown, the price will warn us.
Let’s start with the hot topic du jour: Bitcoin.
Bitcoin finally eclipsed its 2017 euphoric high last week and screamed to just north of $24,000/coin, which represents the 127.2 Fib Extension measured from the 2017 high to the March 2020 low. Fundamentals aside (are there any?) price looks poised to test $30,000 (the 161.8 Fib extension) on the next thrust. By any technical measure, bitcoin is in a major secular bull market, and the heights it may reach will likely shock many.
Silver broke out in a big way in overnight trading with a massive $1.40 move late Sunday, December 20th. After finally breaking through falling resistance of its bull wedge in early December, silver eclipsed the all-important $26 level, which has served as either support or resistance no less than 11 times since 2011, and most recently following the September blow off high. This breakthrough now sets up an initial retest of $30/ounce, with $37 beyond there.
Gold has quietly rallied $140 since the big sell-off in late November, and it is now knocking on falling resistance of its multi-month bull flag. As of this writing, price is on the cusp of a breakout at $1910, which sets up a quick retest of $1940 and $1960, above which should push price back north of $2100.
The Gold:Silver Ratio also continues to trend lower, which is an encouraging sign for bulls, as it implies stronger risk appetite in the space.
For the US Dollar, there is not much to add here. The trend is down, and 88 is a very key level, where we should expect to see some near term support. If price doesn’t hold there, the US dollar will likely fall into the 70s on the index.
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