Gold

Bitcoin prices skyrocketed last week and surged to all-time highs above $2.700, and this generated on the web a lot of articles about a possible bubble of this complex and strange asset.

Like all the financial assets, also Bitcoin can be studied in Technical Analysis using charts. One of the most common errors I have noticed, is the lack of a proper representation of this asset on the graphs.

In the chart below, you can see the BITCOIN/US DOLLAR FX SPOT RATE chart from 2011. It looks impressive but also misleading.

The rapid rise in interest rates during H2 2016 and the concomitant fall of Gold prices did bring back memories of the 2012 -2013 sell-off of the Golden metal. Yet, we believe that this time is different: while the 2012-2013 was driven by the prospects of tapering which led to a subsequent rise in real interest rates, the current environment is more reflationary with measured improvement in inflation and growth worldwide. These economic dynamics should be supportive for Gold prices over the next 12 to 18 months. We would hence consider Gold as a reflationary asset with a defensive twist.

According to the latest reports, US inflation rose, while real interest rates remained negative, therefore, analysts are expecting a boost in demand for gold. Do you share this point of view or not? Why?

I do share this point of view because there is a strong negative correlation between real interest rates and the gold price.

Some experts think that China and Russia both significantly increase gold reserves in order to lower US government’s control on the value of their assets. Analysts suggest that this may weaken the US Dollar and push gold prices higher. Are you of the same opinion or not? Why?

I do not think that it is a reasonable assumption, because the available data simply does not support this opinion. China, for instance, reported its figures on foreign exchange reserves for March, according to which the Chinese Central Bank did not buy any gold for the fifth consecutive month. In the meantime, Russia increased its gold reserves, though not by the same magnitude as in the recent years, with monthly buying volumes being lower than two or three years ago.

The price of gold is getting close to the 1300 dollars mark per one ounce, after a rally that brought it almost 12% higher since the beginning of 2017.

Most of the climb of the precious metal is attributed to its role of safe haven, especially after the rise of political tensions in Syria and more recently over North Korea, but also a gradual deterioration of the U.S. dollar value, which trends are usually inverse to those of gold, contributed to this rally. In figure 1, where the Dollar Index is compared to gold, it looks clear that since the greenback has begun to depreciate from the 14 years high that had reached at the end of 2016, the price of gold has inverted the down-trend that had subdued it for most of the second half of last year.

Manipulation of the gold price has been going on for decades, and no one has gone to prison or been fined. Price discovery in the gold market has been eliminated. This is scandalous.

Authorities in the Netherlands said the probe related to as many as 55,000 suspect accounts held at a Swiss bank, which officials refused to identify however Credit Suisse later released a statement to confirm its involvement in the investigation.

The statement did not identify the bank but Credit Suisse’s London, Paris and Amsterdam offices were contacted by local authorities over client tax matters, the Zurich-based banks confirmed on Friday, after Dutch prosecutors said they had seized assets and arrested two people in an international hunt for tax evaders, as Financial Times reported in the morning. Credit Suisse spokeswoman Anna Sexton declined to comment further.

The yellow metal traders are expecting the fundamentally important vote on US healthcare, which will reveal, whether Donald Trump can get legislation passed. Due to that reason the bullion bounced around the 1,245 mark on Friday morning. From a technical perspective the commodity price is squeezed in between the weekly R1 at 1,242.38 and the 50.00% Fibonacci retracement level at 1,248.96, which is enforced by the long term downward trend line at 1,250.12. Due to this trend line it can be assumed that the legislative bill will not be passed. However, it might as well be easily broken, and market participants should stay vigilant.

On Friday morning the yellow metal’s price remained rather unchanged, as the bullion fluctuated just above the 1,225 mark. Previously, during Thursday’s trading session the bullion extended the gains, which it scored on the Federal Reserve’s rate hike. However, at the 1,233.59 mark the bullion encountered the resistance of a medium term descending channel, which proved strong enough to cause a minor decline in the commodity price. It is most likely that the bullion will make another attempt to break higher, as on Friday morning the decline has stopped, and the yellow metal has begun to approach the weekly R1, which is located at the 1,228.89 level.