Gold continues its contained volatility, likely heading for a pivotal breakout.
The gold price bounced on $1,830, and is now hovering around the key support level to $1,850. Gold is firmly planted inside the rising channel that has guided the price this month.
From a technical standpoint, we continue to get confirmation that November 30th was the seasonal low. If gold continues to hold its support levels, we expect to see the price climb toward $1,885 over the next few weeks. We are anxiously awaiting the moment gold decides to climb up and retest its old highs in the mid 1,900’s. Gold’s upward compression is building toward a potential breakout, which will be a telling sign of the metal’s movement in the first half of 2021.
Of course, we are not out of the woods yet. Gold investors need to be aware of the bearish tendencies that have been laying on the pressure since last summer. As always, lower prices could present great buying opportunities.
What is the Federal Reserve up to?
Investors are currently reacting to the first Federal Reserve meeting of the year, in which the Federal Open Market Committee announced a commitment to maintaining robust monetary stimulus policies, keeping interest rates near zero, and targeting higher inflation.
Central bankers use interest rates as tools to regulate the flow of money in the American economy. Lower rates are correlated with more money flow, lower unemployment, and higher inflation. Monetary stimulus, such as Biden’s $1.9 trillion plan, also seeks to achieve these measures. Higher rates are correlated with less money flow, resulting in higher unemployment and lower inflation.
The question throughout 2020 was, when is the Fed going to start raising rates? Fed Chairman Jerome Powell provided the answer yesterday: not anytime soon. In fact, many investors are expecting 1 or 2 interest rate reductions in 2021 rather than rate increases.
The point is, all this news is good for gold. Gold has historically performed very well during times of inflation and currency devaluation. The asset serves as a hedge against both.
Which direction will the Dow break?
The Dow Jones Industrial average, a traditional measure of the health of the stock market, has been trading within a pretty tight range since November. Every small move upward takes the index to all-time highs. We have seen 8 new all-time highs in the Dow over the last 3 months, each one slightly higher than the last. At some point, we expect to see the Dow correct out of this channel, possibly dropping toward $28,800.
However, many investors are betting on a continued long-term stock markets uptrend. The Fed isn’t going to stop pumping money. These policies mean a weaker Dollar and a loss of purchasing power, but they also mean more free capital to boost markets.
How should I react?
The name of the game is diversification. It is easy to get caught up in the stock market mania when you see your friends getting rich off crazy bets like GameStop and AMC. We wish you the best of luck when hopping on speculative investments like these. I think we can all agree, sticking it to Wall Street billionaires feels pretty good.
However, we would advise you to build a strong portfolio foundation before pumping money into companies that are trending Reddit and Tik Tok. Gold is the ultimate market hedge because it serves as both an investment vehicle and a physical currency. It performed extremely well in 2020, and is positioned to continue this performance in 2021.
Vaulted helps you turn your cash into the world’s most stable and trusted physical currency. With the best cost structure in the industry and personal advising from precious metals experts, you can achieve what no one is talking about nowadays: peace of mind. Best of luck in your investing ventures, and we will see you next week!
