Gold Becomes An Alternative Currency To The U.S. Dollar

Fundamentals

The markets have entered a volatile session, based on GDP going down about -32.9% and unemployment keeps getting worse. We are getting data that the economy is in a state of crisis. The anticipated stimulus that's a must to stabilize the markets is beginning to put tremendous pressure on the US dollar. The predictions are for a negative effect on the dollar. The risk of a devaluation or an implosion in the dollar will be favorable for gold.

In gold and silver, we have seen an incredible rally already in a short time period. In early August, gold was down to about $1412. In March, due to the pandemic, gold collapsed to $1450.90, which has been the bottom of the market for 2020. We rallied from that level, which was a tremendous buying opportunity. Gold is becoming a currency or an alternative to the dollar. Gold has gone up more than $500. The high was $1998, which was made yesterday.

Courtesy: TDAmeritrade

Although the metals prices long term are indicating much higher prices based on the devaluation that the dollar is experiencing as we print more money, there are likely to be short-term pullbacks. The pandemic is going to test the US dollar as a fiat currency. It may spell the end of the dollar as the world reserve currency, which already is gradually happening. The share of the US dollar as the world’s reserve currency has been in decline for decades. China, Russia, Iran, and others are starting to use other currencies more to settle trade transactions. The Yuan, the Euro, and other currencies are beginning to be increasingly used. China is moving aggressively into Latin America and Africa, offering the Yuan as a rival reserve currency. In parts of Latin America, such as Ecuador, using the US dollar has been a disaster. China has come in and has helped some Latin American countries, which are trying to move away from the US dollar.

This economic chaos that we are in is putting the US government, economy, and dollar to a major test as the world’s leading economic power. This is a major shift, which is affecting the precious metals markets. Gold and silver are no longer just commodities. They are becoming rival currencies to the US dollar. We have yet to see the volatility in the gold market, even though we are close to $2,000. Once we get through $2,000, gold will accelerate to $2,200 very fast. Buyers are coming into the market, both professional speculators but also institutional investors, such as hedge funds and pension funds. Gold is now seen as a potential vehicle to hedge the risks involved in their US-dollar denominated investments. The fear is that US-based investments are going to collapse. Even assets that are in huge profits, if the profit is in US dollars, that profit is far less than you may believe. Devaluation is eating away at that profit in US dollars. That's why the metals are taking a leading position during the pandemic. The end of the pandemic also does not appear to be in sight.

President Trump tweeted, commenting on the possibility of delaying the elections because, he claims, the entire process is a fraud. These are unprecedented times politically and economically. There's little, if anything, positive on the horizon that could resolve these major issues. There's a lack of leadership. There's no national plan. The economic system is broken. Huge numbers of people are unemployed. Small businesses are closing. If we go into another lockdown, that would be devastating to even more businesses and workers. The longer it takes to find a solution, the more it will impact the US and the world’s economy. This is the problem with globalization. If one country fails, it affects everyone else, especially when that country is the United States. All of which bodes well for the price of the precious metals.

We use the Variable Changing Price Momentum Indicator (VC PMI) to trade the markets technically.

Gold

Gold is trading last at $1971. The VC PMI daily average price is $1980. The Buy 1 level is $1962 and the Buy 2 level is $1938. The market activated a buy signal from the $1962 level and we captured a profit all the way up of about $1630. Our goal is $300 for each day trading. Once we reach that, we take the profit and go neutral. It does not affect our long-term or swing trading position.

We did trade above the average price, which activated the $2005 level. We are actively looking for a daily target of $1980 for the remainder of today and a close above $1980 will activate the targets of $2005 and $2023.

After a big run-up, gold is taking a bit of a breather as we test the support to determine where buyers are going to come in.

For the weekly numbers, we are at about $1968 as the Sell 2 level, and Sell 1 is at $1934. $1968 has become a defining pivot point for resistance. The market today falls right into the Buy 1 level of $1962 and the Sell 1 of $1980. It's a mixed signal between the daily and weekly, so it's choppy. You don’t want to trade around the average price. Wait for the extremes above or below the mean to enter a trade.

When you put the daily and weekly indicators together, you can see gold coming down from the high of $1994 to the low of $1958.40, which was a $40 move in a matter of hours. It activated a buy signal, at 2:15 am (Pacific time), and went up to about $1972. It gave you enough room to lock in a profit with a trailing stop. It did not quite reach the target of $1980, but it traded around the Sell 2 level. Now it's activating another setup. When the price comes down and touches the pivot point, it activates a setup. As we move into the average price, the market becomes a little overbought. You want to trail with a stop, and you will get stopped out as the market moves. This is the only time we recommend traders use a straight stop.

The artificial intelligence is identifying the $1962 area as an area where buyers are likely to come in and a strong area of support. The daily and weekly signals are contradicting each other, so it is mixed. The nine-year cycle target is $2007, which has not been met. The first target of $1833 has been completed. The Sell 1 level today is $2005. If we are able to spike into this target, the VC PMI recommends to take profits and go neutral at that point. Wait for the market to show you where it wants to go because of all the volatility. Mr. Trump has a way of doing that with his tweets, such as about not accepting the outcome of the election. We are neutral and waiting to see where the market is going to go. If gold activates a buy trigger from here ($1962), there is a 90% probability of a reversion to occur, activating the $1980 targets.

As we move into the end of this month, there's a probability that the markets may get a little softer as we move into August. If we do get a correction, the number that we are looking for in gold is about $1870, which is a major move.

We are waiting for buy signals in gold and silver. For gold, buy on a close above $1962.