Fundamentals

Volatility in gold is increasing as we deal with trying to resolve the political, health, and economic crises. The storming of the Capital last week was significant. It has given many a pause for concern. It does not appear to be over, by any means. Unrest will continue to cause extreme volatility in the markets, including gold. It has created nervousness in the market, which is creating more volatility. Even so, stocks continue to rise. Political concerns have overtaken pandemic concerns. Even so, the pandemic continues to damage the economy.

Gold and silver this morning have been rising as worries about the pandemic hurt stocks and help safe-haven demand for precious metals. Tuesday the US reported a new record for COVID-19 deaths and the Fed made dovish comments, which increased demand for gold.

Global economic data was bearish for gold with the Eurozone November industrial production rising 2.5% month-to-month, which was stronger than expected and the largest increase in four months. In Japan, the December machine tool orders number increased 8.7% year to year, which was the biggest increase in 2-1/4 years.

St. Louis Fed President Bullard said the Fed must "regain credibility" that it will hit its 2% inflation target and "we are going to be less pre-emptive than we would have been" in previous decades and "we are going to let inflation go over target." His statements helped boost gold prices.

ECB Governing Council member Villeroy de Galhau further supported precious metals prices when he said, "the ECB remains clearly committed to its 2% inflation target and to achieve this we will maintain favorable monetary conditions for as long as necessary."

Today's U.S. consumer price data showed weak price pressures, which will depress gold demand as a hedge against inflation. The U.S. December CPI ex-food & energy rose 0.1% month to month, and 1.6% year to year, which met expectations.

The worsening pandemic supports gold, which leads to dovish central bank policies, but at the same time lockdowns hurt economic growth and demand for industrial metals, such as silver. The U.S. reported a record of 4,610 COVID-19 deaths on Tuesday, while the UK on Wednesday reported a record of 3,363 people on ventilators. Japan expanded its state of emergency beyond the Tokyo region to seven more prefectures, which means half the economy is under lockdown. In the world, infections have risen above 92 million, and deaths have almost reached 2 million.

The incoming Democratic-controlled Congress is expected to increase stimulus measures, which will boost precious metal prices. President-elect Biden said he expects to spend trillions of dollars.

Funds have begun to buy precious metals in recent months, further offering support to gold and silver.

After what happened last Wednesday in Washington, gold should have reacted. It appears that gold is not trading based on political events, nor based on economics. Bitcoin appears to be reacting to what is happening politically and economically. We trade the Grayscale Bitcoin Investment Trust (OTC: GBTC), a regulated security, which provides more security than trading Bitcoins themselves. GBTC is registered with the exchange and allows you to trade on Bitcoin’s volatility with less risk. GBTC hit a 48.65 high yesterday and then it just collapsed. It is trying to define the next level of support. Time will tell if this was a blow off or if we are heading for much higher prices. GBTC seems to have come down to a critical level of support and we are seeing buyers begin to come into the market again. This might be a level of support.

Gold

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The Variable Changing Price Momentum Indicator (VC PMI) is showing gold trading last at $1841.70. It made a low of $1817 yesterday, which was a significant turning point. It came right into the VC PMI daily Buy 1 level. Below that level is a strong relationship at $1800 and $1798 between the daily and weekly VC PMI levels. Gold then rallied right up into the monthly target of $1864. The daily target today was $1861, which was completed early this morning. We completed the Sell 1 daily target of $1861 and the monthly target of $1864. Then it activated a short trigger at 2:45 am (PT) on the daily at $1861. Those moves completed the pattern. We are getting a lot of action on the overnight GLOBEX sessions. That makes it hard for US traders to take advantage of the moves, but you can’t make every trade.

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Courtesy: Ticker Tocker

If the market comes down to $1822 or up to $1861, it will offer the highest probability trades. You don’t want to trade around the mean, since there is a 50/50 chance of the market going up or down from there. You want to use the VC PMI to identify the extreme levels above and below the mean. Then you can buy or sell at those levels for the highest probability trades. The VC PMI offers 90% probability trades at the VC PMI Sell 1 or Buy 1 level, and 95% probability trades at the Sell 2 or Buy 2 level.

We are trading between the monthly average of $1864 and the daily average of $1839. Right above is the daily VC PMI Sell 1 level of $1861 and the Sell 2 of $1878, which matches the weekly average of $1880 and the monthly of $1864. Those levels then become the target.

Buyers are beginning to enter the market. It appears to validate holding a long-term position in gold.

Since the March high of $2089, the market has been waiting to see how much damage has been done to the economy. Traders thought there would be far more damage, and the market came down to $1767 last year on November 30, which was the low for 2020. The leg from $1767 to $1962 is almost a $200 move since November 30. This is just the beginning of volatility in the gold market. Gold and silver are getting ready to explode.

The recent sell-off from $1962 to $1817 is about a 50% Fibonacci correction. It looks like a second Elliott Wave correction. The second wave is up to a 72% correction. When we establish the bottom of the second, then we start the third wave, which is usually double the move of the first leg. If the first move was $200, then the third wave should be about $400 from the low of $1817, so it should hit $2217. It also fits into the upper range of the long-term Fibonacci trend line resistance, all the way up to $2863. The VC PMI is identifying the start of the third leg. $1767 matches a 50% retracement from the March low of $1456 to the high of $2089. It seems that the next seasonal pattern is unfolding. This correction was a second-wave correction. The second and fourth waves are corrective. Now market volatility is increasing with a mixed short-term signal as it trades between the daily ($1839), weekly and monthly average of $1880 prices. The market is in a choppy area. It will probably trade within those average prices. Don’t trade; wait for the market to go to an extreme above ($1878 to $1880) or below ($1800 or $1822) to trade. If we get above $1864 on the monthly, then it’s critical for the bigger picture. The Sell 1 monthly is $1950. The market almost came down to the monthly Buy 1 of $1816, which has been in place all month. Right below that was the 360-day average price of $1810. Therefore, that area was a strong area where a reversion was likely to unfold. Within a 10% margin of error, that level did prove to be the area where a reversion occurred. With the harmonic convergence of the daily, weekly, and monthly levels, we are seeing the bottom of the market become clear at about $1800, $1798, $1810, and $1822. In that area, the market is highly likely to revert back up as buyers come back into the market. We are at or almost at the bottom of this counter-trend correction. We are using this correction to add to our long-term positions.

If we close above $1865, it will be extremely bullish for gold. The Buy 1 level today is $1822. From yesterday to today, the buy levels are at higher highs, which is bullish.