What a day; full of surprises.
Trump Team at Davos Backs Weaker Dollar, Sharpens Trade War Talk… “A day before Trump’s scheduled arrival in the Swiss ski resort of Davos for the World Economic Forum’s annual meeting, Treasury Secretary Steven Mnuchin endorsed the dollar’s decline as a benefit to the American economy and Commerce Secretary Wilbur Ross said the U.S. would fight harder to protect its exporters.” – Bloomberg, Jan. 24
Mnuchin Says Weaker Dollar Helps American Economy…
Mnuchin on the offensive at Davos with America First message… “On Wednesday, the US Treasury secretary broke with tradition, saying that a weaker dollar was good for US trade, although he expected that economic strength would support the currency in the longer term… the Treasury secretary added: ‘The dollar is one of the most liquid markets. Where it is in the short term is not a concern for us at all. A weaker dollar is good for us as it relates to trade and opportunities. Longer term, the strength of the dollar is a reflection of the strength of the US economy and that it is, and will continue to be, the primary reserve currency.’ Wilbur Ross, the US commerce secretary who shared the platform with Mr Mnuchin, took a characteristically tough line on the trading policies of other countries including China, the day after the US imposed higher tariffs on washing machines and solar panels. Mr Ross said: ‘Trade wars are fought every single day . . . And, unfortunately, every single day there are also various parties violating the rules and trying to take unfair advantage. So trade wars have been in place for quite a little while; the difference is the US troops are now coming to the ramparts.’” – Financial Times, Jan. 24
Dollar Plunges Most In 10 Months – Worst Start To A Year Since 1987… “Despite Wilbur Ross’ efforts to walk-back Mnuchin’s ‘game-changer’ weak-dollar-policy implications, the Dollar Index is in freefall.” – ZeroHedge, Jan. 24
WHITE HOUSE SAYS IT BELIEVES IN FREE-FLOATING CURRENCY – Press Sec. Sarah Sanders, White House Presser, Jan. 24
Look who came to the party and endorsed Trump… Al Gore – no kidding!
Al Gore Defends Trump’s Solar Tariff Decision At Davos… “Former Vice President Al Gore did something he, admittedly, rarely does and defended a recent Trump administration decision to impose tariffs on solar cells and modules. ‘I don’t typically defend him,’ Gore said during a panel discussion at the World Economic Forum in Davos, Switzerland… ‘I will say in this case it did not start with him,’ Gore said. ‘This was a trade action brought by private companies. They chose a kind of a midpoint in the range of alternatives.’” – DailyCaller, Jan. 24
Top executives in Davos love the POTUS tax cuts…
The wizards behind the curtains don’t see the underlying fundamentals guiding the global economy as being too rosy my dear …
Breaking point: World financial system as stretched as before 2008 crash, says OECD banker… “The world financial system is as dangerously stretched today as it was at the peak of the last bubble but this time the authorities are caught in a ‘policy trap’ with few defenses left, a veteran central banker has warned. Nine years of emergency money has had a string of perverse effects and lured emerging markets into debt dependency, without addressing the structural causes of the global disorder. ‘All the market indicators right now look very similar to what we saw before the Lehman crisis, but the lesson has somehow been forgotten,’ said William White, the Swiss-based head of the OECD’s review board and ex-chief economist for the Bank for International Settlements.” – NZHerald Jan. 24
How is the Velocity of Paper doing? I did mean the Velocity of Money, pun intended. It’s a real cliffhanger…
On to the USD and gold charts. My most recent technical analysis, discussion, and follow-up charts on the USD and gold can be found in my Jan. 13th article. To view a larger version of any chart in this article, right-click on it and choose “view image.”
USD monthly Jan. 24th, 2018, 5:30PM EST, a look at the bigger picture before discussing the weekly chart details…
Zoomed in on the USD weekly, Jan. 24th, 2018, 6PM EST…
The big news today was Mnuchin at Davos talking down the USD. As a result, it got crushed by nearly a full point. On the daily, it opened at $90.07, and the low of day (LOD) was $89.15! Yuge. Thus far, this week’s candle has decisively breached the lower trendline of the Ascending Broadening Wedge, as well as taken out the 300-day Moving Average (MA). There are several levels where the price will find intermittent support and chances for a bounce back. The first bus stop is a lateral from June 2010 at $88.70. The next level is a Fibonacci at $87.30. After that, an important trendline drawn up from the 2011 low sits at approximately $87. It gets dicey if that trendline is breached, as the next bus stop is a plunge to the 500-day MA, which is currently sitting at $85.60. Next is the June 2013 lateral at $84.75. It just gets worse after that, and it could go there. The DMI-ADX continues with momentum to the downside and a perfect Alligator Tongue set-up. The StochRSI has bottomed out, but will likely remain a while longer. The RSI has also bottomed out, which is indicative of a bounce in price on the horizon. This chart remains Bearish across the board. I suspect the price will eventually reach that lower trendline, with some short chops along the way.
On to gold…
Some good fundamental data about Peak Gold surfaced last night…
Gold Mine Supply… “’Mine Supply since 1970 and Projection to 2030’ produced by Dan Popescu via Thomson Reuters Eikon… Few investors understand the gold industry, and the reasons for the approaching decline are numerous and industry specific. An understanding of the gold mining industry is necessary in order to understand why the mining supply of gold is dramatically and rapidly shrinking… God did not put gold deposits at 72nd and Park Avenue in New York City. In fact, deposits of gold are located in some of the most distant and hostile places on the planet.” – Jim Sinclair, Jan. 23
Here is the most recent Commitment of Traders (COT) data as of Jan. 16th, with a one-year gold chart overlay from the Jan. 19th weekly close.
There is good reason to be concerned about near-term price action in gold as we close in on a significant resistance level of $1,380. The downside on the USD is being very generous to the gold price right now.
The most recent COT report shows that the Commercials (Bullion Banks) are once again accumulating a huge short position as Open Interest (OI) is reaching recent historic numbers. Large Speculators (Hedge Funds) are heavily long right now as they add longs on the way up and add shorts on the way down. Commercials, on the other hand, layer short positions during a price rise, then layer long positions on the way down, while covering their shorts.
Hedge Funds are only interested in the MOMO play. 99% of the time, Commercials lead price reversals, which tells us a decent-sized correction may be arriving shortly. There is always a chance that a news or fundamental data item, such as Mnuchin talking down about the USD today at Davos, could force Commercials into a short squeeze situation, and the Hedge Funds will just pile in with additional longs until momentum runs its course. It is hard to call it until it’s seen in the price action, as COT reports are released on Tuesdays and the data is one week old. The data only gives a heads-up that a reverse in trend is approaching, but one cannot be sure on timing.
Gold weekly, Jan. 24th, 2018, 5PM EST…
The Sep. 2017 high at $1,357 was taken out today, but not decisively as I type this report. The price printed a high of day (HOD) at $1,362.18, with a sweet bullish soldier candle. The $1,380 Head & Shoulders Neckline and the $1,375 Cup & Handle Rimline are only a stone’s throw away. Despite the positive price action, the COT report discussed above makes me nervous as we approach a significant resistance level. The Commercials could take advantage of any news construed as gold-negative and run some stops to the south side and unload their short positions. On the other hand, they might get caught with their pants down, and we have a RYPO (rip your panties off) short squeeze move that rips through overhead resistance and on to $1,400. All the studies (DMI-ADX, StochRSI, MACD, and volume) look fabulous, but my gut says to wait. If you did not add any positions before the current price run, now is not the time to do so. It would be prudent at this time to wait for a decisive break through $1,380. If we get a pullback with some consolidation first, adding positions on that dip would be considered low-risk. My outlook is Neutral for new positions and remains Bullish on the price trend overall.
Plan Your Trade, Trade Your Plan
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