Weekly Update: Gold, Silver, Bitcoin – 02.02.2017

gsb

Greetings fellow amateurs,

Some interesting developments have taken place in GSB over the past week. As a general note, exchanges in China have been closed for “Golden Week”. This week occurs during Chinese New Year and then again in the fall. It is worth observing that during the previous Golden Week there was an epic smackdown in the precious metal futures complex that broke the sideways consolidations and confirmed the downtrend that has persisted until recently. In 2017, both precious metals and cryptocurrencies are having a decent run even while China has been out of the picture.

The petrodollar regime continues to erode as Iran declared that it would stop using the dollar as its currency of choice. The narrative goes that this was a retaliation for the Trump administration’s temporary suspension of immigration from seven countries while proper vetting processes can be established. Even if the shamefully misnamed ‘Muslim Ban’ – the executive order contains no religious restrictions, doesn’t use the words Muslim or Islam, and doesn’t apply to the overwhelming majority of Muslims – contributed to this decision, it is only part of an escalating tension between Iran and the US.

Will other nations continue deciding to ditch the petrodollar? I think the real question is the pace and timing. The dollar will eventually cease to be the world’s primary reserve currency. The question is when this will take place. I don’t know the answer to that question, but I do know that holding monetary alternatives like GSB is an excellent way to prepare for this eventuality. Currencies are tricky because they are also units of measurement. When their value changes, the prices of all goods and services fluctuate accordingly. It is best to simplify our decision making and look at preserving purchasing power. The regular charts, price commentary, and outlook appear below:

Gold

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One argument against gold – and even silver – that I have seen is that it can’t be easily stored, transported, or used for payments. Because there are new readers jumping on all the time and this may be the first weekly update that they have read, I’ll reiterate a simple point. Goldmoney has an excellent service where you can set up a gold account and use a debit card to transact in gold wherever MasterCard is accepted. The downside is that you don’t have physical possession of the metal (which is why I recommend balancing between physical holdings in order to mitigate third party risk as well as to obtain the liquidity). There are also threats to the payment system through the electrical grid, but keep in mind that the option to use gold for transactions exists now in a way that it hasn’t before. It is critical that we always keep an eye out for new solutions in order to avoid getting stuck in obsolete paradigms. At the same time we must be sure to analyze risks and not to view anything as a panacea before conducting full due diligence.

That being said, after dipping back below $1,200 gold swung higher over the past week in large part due to a continued decline in the dollar with the dollar index dipping back below 100 after hitting 10-year highs at the beginning of the year. The Federal Reserve is still making dovish noises about not following through with it’s stated intention to hike rates three times this year. The status quo chicanery is continuing, but hopefully there is some real economic cushioning that can be developed while the endgame of the various bubbles run their course. Regardless, due to the Fed and to comments coming from the Trump administration, the steam has abated from the dollar rally and precious metals have been given a lift as a result.

We’re bumping up against the 100-day moving average here. A quick move back above $1,240 would be a strong signal that we could make a run back above $1,300 before settling down. A manipulation plunge would likely look like a two or three day drop back to the $1,150 area and would represent a great buying opportunity. With China coming back online after the holiday I don’t think such a smackdown is likely, but with our understanding of the way the game is played that sort of price action should never take us fully by surprise and in fact should be taken advantage of.

Silver

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We’ve seen some strong price action from silver as it has taken out trendline, price, and moving average resistance. A close above $17.50 at the end of this week would be a bullish confirmation, and depending on the jobs number on Friday there is an outside chance for us to see a move back above $18.00. It’s hard to declare that we’re in blue sky territory yet because of the degree of manipulation in silver, but it almost feels like it’s getting more difficult for the manipulators to keep the lid on everything at once. Once again, silver is a buy at these levels regardless of price. If you can get some: great. If you can get more: even better. Continue to gradually accumulate while maintaining patience and discipline.

Bitcoin

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Here’s a brief flashback to last week’s update: “My instinct – admittedly fallible as it may be – says that the latest two weeks of consolidation has been warranted and that if we go sideways at the $900 level for a while longer it will be healthy to build up for another push above the $1,000 mark.”

It looks like a while turned out to be a bit less than a week, because we’re back at the $1,000 level today. Keep in mind again that this price action is taking place while China is offline. Something is up, and while the price action is a bit stretched again I’d expect it to continue unless we get another exogenous event such as a policy announcement. Any substantial drop should be seen as a buying opportunity. Those who went with my recommendation to grab some at $800 or below in my forecasts for 2017 article at the beginning of January have seen some solid gains. I’m already at my full portfolio allocation for bitcoin, but I would consider getting some more on a dip back to the $800 – $850 area. It would be great to see another consolidation above $1,000 in the same form as the one above $900. If China comes along and we get an explosive move it might be time to take some exposure off the table temporarily in order to rebuy after a pullback. This tornado has a tendency to go parabolic, but I’ll continue to hold unless I see a move up to $1,500 that takes place a bit too fast unless it is motivated by some fundamentally game-changing event.

Conclusion

Good stuff this week from GSB. Watch for buying opportunities and keep your eyes open to overarching developments in the dollar as well as geopolitics. When we get confirmation of the resumed bull market there will be many more people joining the party. However, this is an example of when being fashionably late is not a smart move. Get your allocations in place and continue to slowly build your portfolio of real assets.

Disclaimer: These are one amateur’s fallible opinions. Holding any asset is risky, so do your own research and make your own investment decisions.

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