The dollar index hit a double-peak around the 1275 range and has now broken down, brushing against support. This trading range, which was formed in the past six years – between 1275 on the top end, and 1150 on the low end – could break down and realistically reach 1025, wiping out 20% of savers’ purchasing power in no-time.
The dollar can fall because (1) investors are putting cash into equities and lowering their cash allocation or (2) because of inflationary expectations.Right now, investors are in love with risk and think that there’s no way prices are coming down, so they’re not hedging with precious metals whatsoever.
You have to go back to 2010 to witness this many call options, compared with put options…
Clearly, the markets celebrate the end of Small Business America and the theft of market share towards big business. This pandemic has crushed the mom-and-pop shops in favor of corporate America, and the markets don’t care that a third of renters (about six million people) are currently behind on payments and face eviction in January.
The CARES Act, which is set to expire, also includes Emergency Unemployment benefits, which are crucial for 10% of working Americans.
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He won’t sign a $2tn stimulus package if he has to leave office; he does not want a giant debt package to be his legacy. However, he sure can negotiate a re-branded Problem Solvers Caucus deal, especially with the $454bn that the Treasury Department just got back from failing FED lending programs.
Between vaccines arriving early, TSLA’s likely inclusion in the S&P 500 index this month, a high likelihood of the 2021 budget passing, a probable victory for Republicans in GA and the possible bridge stimulus, this market is simply euphoric!
Money is flowing into stocks like champagne bottles at a Monaco yacht party, but here are a few catalysts to consider as the reason this shindig might be cut short soon, allowing better entry points into the market:
- Hedge Fund Selling: In order to market to prospective clients that they had an amazing 2020, fund managers must rotate from stocks to bonds, realizing gains and showing prudence and safety by owning bonds.
- Faulty Polls: Imprecise polling, which will show the Democrats taking GA by a landslide is not what the street expects and might end the rally.
What, then, could be a catalyst for gold to bottom soon and then attract both support and buyers?
One is a global recovery, which is not what Q1 2021 is projected to be. If GDP contracts, certainly no inflation is to be had. A recovery will cause all of this currency to work its way through the economy.
Secondly, a confirmation of the dollar breakdown, below current support, might prove to be a super-bullish catalyst for commodities, in general.
At the end of the day, if the Federal Reserve continues to be adamant that it make up for lost time by allowing inflation to run, gold will do well.
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