The Dollar slowly decays against other currencies, as gold enjoys a bullish holiday season.
How low will the Dollar go?
The U.S. Dollar started 2021 in a weak position. Below is a chart of the U.S. Dollar Index, which measures the strength of the Dollar against other major currencies. The Dollar index has dropped to its previous lows of early 2018, currently holding right at the 1.618 Fibonacci retracement level. Remember, gold is a hedge against currency devaluation, so a dropping dollar usually correlates with rising gold prices.
If the Dollar bounces off the 1.618 Fib and decides to rally, it will likely rise to the long-term declining trendline (blue on the chart below). The Dollar has been tracking this trendline since 2017. The four signals listed on the chart indicate a short-term rally in the Dollar before continuing its long-term decline.
Happy new year to the yellow metal.
Gold’s upward trend is locked in, although it met resistance at the November highs. The holidays were very strong for gold, so we will likely see a slight correction before continuing the upward bull market trend.
The long-term .382 Fib, short-term .618 Fib, and 200 day moving average all converged around the same price: 1840. This makes a strong argument for gold dropping down to those fundamental indicators in the next week or so. Drops like these provide excellent gold entry points but do not last very long. For investors hoping to add to their position, timing is key!
How should I react?
Asset allocation is a primary concern. Equities are exploding and may continue to skyrocket as the Fed pumps more cash into the system over the next few months. Everyone wants to capitalize on high-flying stocks like Tesla, Zoom, and Moderna, and as these companies continue to soar, more and more investors forget one of the most fundamental rules of finance: what goes up must come down.
Allocating funds to market hedge assets such as gold protect against potential market downturns. Precious metals are positioned to perform very well in 2021, and many fundamental indicators suggest they are a much safer choice in the current environment. Vaulted is the obvious choice for building your gold allocation and preparing your portfolio for an uncertain future.
