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TA, Debt, De-Dollarization And Bitcoin — Gold Market News And Charts Week 37

TA, Debt, De-Dollarization And Bitcoin — Gold Market News And Charts Week 37

1. Technical picture looking more and more bullish for gold in 2017

Even though the week ended in decline for precious metals, I consider it to be a very important stepping stone for the continuation of the uptrend. Both gold and silver have sizable gains in the past few weeks. Though I believe that we should be several magnitudes above the current price levels, seeing the struggle for the past few years, both metals are performing pretty well and may deserve a small retreat. This week marks an important signal for technical traders as gold and silver held above important technical levels confirming the last week's breakout to new highs.

The week that follows the breaking of the important technical level is always tricky as often the move is faded or is only used to trick the long positions only later shooting the market down again. 

All the information at the current time is always reflected in the price of an underlying asset so technical analysis always helps to give perspective over everyday market chatter.

Gold Continuous Contract

2. US Total Public Debt tops 20 trillion dollars

People forget. But there is a time when the debt ceiling comes to discussion and we are reminded of the true reasons why gold should be considered the right choice of asset. 

The markets and people at major central banks are only lucky that the debt became so astronomical as people have hard times to comprehend the size of the problem we face. $20 000 000 000 000. Yes, those are 12 zeroes. 

Gold and U.S. National Debt Correlation

While we can't say that there is always a correlation between gold price and debt, we sure can say that debt is one of the important factors contributing to gold price appreciation. Growing debt translates to the change of potential weakness in the currency and distrust in the US dollar. The more debt grows the bigger the probability of devaluation through inflation or default. Either way, in real terms gold should profit from this development.

Gold vs U.S. Dollar Index 2001 - 2017

3. De-Dollarization continues

As we mentioned above, more debt means ultimately dilution of US dollar purchasing power. And we know that the dollar purchasing power is for decades based on oil market denomination in US currency. Therefore, the following developments are an important signal of US dollar losing their influence slowly but clearly. This does not mean that dollars will lose their power over a year, but the trends are clear and investments will be aligned with these trends going forward. 

Venezuela disconnected their oil sales from dollar

Venezuela told oil traders that it will no longer receive or send payments in dollars. As a result, oil traders who export Venezuelan crude or import oil products into the country have begun converting their invoices to euros.


Furthermore, Venezuela’s state oil company Petróleos de Venezuela SA, or PdVSA (whose bankruptcy is fast approaching), told its private joint venture partners to open accounts in euros and to convert existing cash holdings into Europe’s main currency, said one project partner. The new payment policy hasn’t been publicly announced, but Vice President Tareck El Aissami, who has been blacklisted by the U.S., said Friday, “To fight against the economic blockade there will be a basket of currencies to liberate us from the dollar.”


Fast forward to today, when according to a statement on the Venezuela oil ministry, the country’s weekly crude oil and petroleum basket “will be published in Chinese Yuan” — oddly, not in Euros as the WSJ hinted — going forward. We can only assume that Venezuela avoided the European currency on concerns that Brussels may follow in D.C.’s footsteps and impose financial sanctions on the Maduro regime next. Which meant that the only “safe” currency to transact in, was that of the country’s two big sources of vendor (and commodity) financing: China and Russia. For now Venezuela has picked the former.

This is a big change as the proven oil reserves in Venezuela are recognized as the largest in the world. Even though their oil sector is almost dead and their oil hard to process, the future probable impact of oil denominated in yuan from Venezuela will negatively impact strength of US dollar.

The precedent that is being established here is more important than the real oil trade based currency impact.

YTD total returns across asset classes confirm that US dollar is losing ground in 2017.

 Sector Performance 2017

Sector Performance 2017

4. Bitcoin

It is hard to find any other market where investors share similar reasoning to invest than between Bitcoin and gold. To get away from concerns such as government debt and money printing. Whether Bitcoin will go up to $100 000 or not, I expect every major shake-up in Bitcoin market to the downside as a supporting factor for gold. I expect more and more Bitcoin early holders to diffuse some of their profits into gold and that people searching for less volatility to the downside will potentially start considering gold as the first choice.

This week China decided to crack down on Bitcoin exchanges and directed them to close their exchanges until the end of September.

“Chinese investors have until September 30th to get their money out of exchanges before they close,” Brian Kelly, CEO and founder of BKCM and a CNBC contributor, said in an email. “This is a market structure drop and not a drop on fundamentals, therefore this is a buying opportunity.” 


It’s been a rough month for Bitcoin. Just two days ago, JP Morgan CEO Jamie Dimon called the cryptocurrency a “fraud,” adding “it won’t end well.”


“It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed,” Dimon said at a banking industry conference organized by Barclays. “Currencies have legal support. It will blow up.”

Bitcoin Daily Chart $3000 - Previous High Support Retested

The return to gold does not depend on the fulfillment of some material condition. It is an ideological problem. It presupposes only one thing: the abandonment of the illusion that increasing the quantity of money creates prosperity.
Source: Economic Freedom and Interventionism

Have a great day friend. Keep looking up.

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