2021 – Cryptos Leading The Way

January 4, 2021

2020 came to a rather muddled up end, with the election still undecided and prices of gold and silver having spent nearly five months under tight control. The new year was barely one day old when the fireworks that rang out the old year were followed by fresh fireworks of a different kind. The prices of the cryptocurrencies exploded. They gapped higher with Bitcoin recording an instant gain of 9.3%. Does this imply that gold and silver will copy that behaviour on Monday?

Apart from the fireworks in the crypto world, hopefully to be followed by the PMs, and with news that the COVID-19 virus has mutated, 2021 begins with the greatest threat to the US and perhaps also the world since 1939 when WWII started. The by now well proven existence of major voter fraud and associated events are evidence of a global conspiracy that may have its roots in the US, but which is larger than I could have imagined before. The final outcome of the election dispute is still in the balance, and irrespective of who lives in the White House, it could still require months if not years to be resolved, either way.

COVID is still raging globally and in the US. The news out of the UK of a mutation in the virus, one that appears more virulent than the old one and now reported in 30 and more other countries, raises a grim picture. The global seasonal flu that is well known, requires new vaccines every season because the virus has mutated and the old vaccines no longer work. The flu viruses are from the corona family and if the COVID version displays the same characteristics as its cousins, we can prepare for a more deadly new flu season almost every year.

There are 6+ vaccines either in use already or ready to be distributed. It might be that all of them also prove effective against the new mutation, which will be good news even if only one of them offers immunity. The good news may only last until there is a new variant of the virus that requires a completely new vaccine. Life will then become a bit more difficult, particularly for people with compromised health.

At time of writing there is no firm news of what caused the prices of the cryptos to gap higher. There was no gradual build up of demand, with increasing prices and in volume to show that fresh buyers are entering the market. In a quite brief moment the price of Bitcoin jumped from about $29 700 to $32 450 (9.3%). Ethereum also gapped higher at the same time. The spot market moved steeply higher, from $29 750 to $32 760, from midnight of January 1 to 0400GMT on January 2. This timing could be significant since the above chart of the Bitcoin CFD shows the derivatives market was closed at that time.

It would appear that Bitcoin and Ethereum showed similar steep increases, but that this was not the case with most minor cryptos. Two possible reasons for these gaps are, firstly, that the so-called “Bitcoin Whales” enjoyed a bit of fun with the crypto market. These are the early buyers in large quantity of Bitcoin when these cost only a few cents. Many of them are billionaires and they might be responsible for some if not all of the very sudden and steep moves in the price of Bitcoin.

The fact that Ethereum also gapped higher, if less than Bitcoin, opens up another possibility. It has been reported that large institutions have become interested in Bitcoin, probably as broader diversification. It could be that a megabank (Chinese perhaps?) has decided to invest in cryptos in a big way and steadily bought BTC and ETH for four hours, starting early on Saturday when markets were quiet. They must have taken out the offers stack bit by bit during that time, delaying as long as possible awareness that a coup was unfolding.

Bitcoin daily close. Last = $471502

The chart shows the steep channel in which Bitcoin has rallied since the recent low at $170k in early September. While gold and silver languished in the doldrums in preparation for the attack on the December options and futures, the cryptos started a move higher that has been steep and almost consistent, ending with a new spike.

If this speculation holds water, it implies a completely new regime for the cryptos where the large financial institutions might dominate the market. If so, the nature of the market could change; volatility could decline, but progress to higher prices then should be steady as greater demand is created when more institutions join in. It would make sense for them to try and diversify into cryptocurrencies in a world where risk in conventional markets has reached a level where it is prudent to invest in a new market.

Should this reasoning be close to the mark and if other major financial institutions also understand what has happened and why, it could be that there will be a wave of more diversification into cryptos and also in other markets that have been under-exploited by them in the past. If cryptos are seen as a potential ‘safe haven’, then surely gold and probably silver should be viewed in the same light. These markets have been closed since Thursday noon in the UK and will only open early Monday morning. It is going to be very interesting to see what happens then.

The pressure on the metal prices that was exerted from early August right to the end of December has been solidly sustained all the time, with extra pressure late in November to close out the December options mostly with a loss to the buyers. The pressure was sustained throughout December to keep the PM markets quiet and it was speculated that the consistent manipulation implied that there were large OTC that would otherwise have expired in profit at the end of 2020.

Normally, after a major period of suppression, prices recovered slowly, as buyers were tentative, aware that a new sell-off could happen after they had been lured into the market. Now, after the strong crypto rally while the PM markets were closed, one could expect the PM bulls champing at the bit to get into the market while the prices are low. Perhaps gold and silver will begin 2021 with a major bang; perhaps even with a significant gap over the Thursday close. Whether that happens or not, 2021 should see the gold and silver null markets continue, if only to try and keep pace with BTC and ETH and – who knows? – even outpacing them.

Euro–Dollar

The euro has again slipped below the steep channel KL, coming to rest on support of line C. Perhaps now there will be a bounce after possible year-end ‘cooking the books’ of the dollar is over. Going by what Bitcoin did, it looks as if this week should see some interesting changes in many markets, with a rally by the euro, back into channel KL, one of the possibilities.

The currency markets surely must react to the prevalence of COVID in the different countries and more particularly to what their governments do to limit the spread of the virus. The dollar can be expected to slide further if the ante is upped as far as the amount of helicopter money being handed out by Congress.

Euro–dollar, last = $1.2214 (www.investing.com)

DJIA Daily close

DJIA, last = 30606.48 (money.cnn.com)

The DJIA has quietly crept higher towards the end of the year to reach the top of the medium term bull channel ABCD at 30 579 and broke only marginally higher. Is this going to mean that the Wall Street bull is to continue in 2021, or is the break higher going to be a brief testing of the water above the resistance that reverses soon to turn the Bear loose?

Gold London PM fix – Dollars

Gold price – London PM fix, last = $1887.60 (www.kitco.com)

The density of the chart since the all time high illustrates the sustained tussle as the bulls fought the pressure on the price of gold. The bulls had to fold against the final onslaught into the end of May, but then fought back during December – until the rally was held at line S. What happens on Monday and later this week should show whether gold can follow the crypto example and also accelerate into a new phase of the bull market.

The first sign that something like that could happen, will be a definite break above the resistance of line Z at $1902 – a near round number of a kind that has often been drawn as a line in the sand by the Cartel. It would not make sense for the Cartel to keep the pressure on the price of gold, again to run up their short position when a much higher price for gold during 2021 is almost a given.

Euro–gold PM fix

Euro gold price – PM fix in Euro. Last = €1535.19(www.kitco.com)

The euro price of gold was steady during the last week of 2020, holding just above line F to remain the steep megaphone JF. As mentioned before and as evident of the behaviour of the price within the megaphone, these patterns generally show a high volatility. The quick recovery into the megaphone after the brief break lower is a positive sign and an extension of the reversal to perhaps break above nearby resistance at lines Y, G and B could be the signal for a return to channel JKL and perhaps a new all time high.

Assuming that the euro will remain steady to firm against the US dollar, such a development will call for a steeply rising price of gold. That would fit in well with what is anticipated for the metal should it emulate what Bitcoin has done.

Silver Daily London Fix

The new silver rally had no problem keeping in steep channel KL and to hold above the steep support along line G. The break above resistance at line B extended, then reversed and then resumed to form a double top at $26.15. The rally then extended late last week to move clear of the double top.

Having thus ended the year on a positive note, perhaps 2021 can build on that to set the direction for the rest of the year.

Silver daily London fix, last = $26.15 (www.kitco.com)

U.S. 10–year Treasury Note

U.S. 10–year Treasury note, last = 0.916% (www.investing.com )

The situation here is stagnant; the yield on the 10-year Treasury note increased off the low values near 0.5% and then crept higher as it approached the 1% level – as if that is too great a watershed to cross and release the bears to take control of the market and scare investors of all kinds, local and international.

It would nevertheless not surprise if all the turbulence in the markets as well as in other arenas does not scare holders of Treasuries to rather sell and wait it all out – and thereby to push the yield above 1%. Such an event might get the Fed all hot and bothered and motivate them to do something about it. The Fed has shown that it is most powerful, but the 10-year Treasury is a global market and the yield has been abnormally low long enough to invite a counter trend.

West Texas Intermediate crude. Daily close

WTI crude – Daily close, last = $48.52 (www.investing.com )

The chart has been virtually unchanged for longer than two weeks now, while the price of crude is making up its mind whether or not to break higher above line Y. In the context of anticipated volatility in other markets, it is not easy to answer the question which direction the price will move.

Apart from the market volatility, developments on the COVID front can influence the price of crude, largely as a consequence of government action. Vaccines are being distributed, but it will be some time before a majority of people have been inoculated; until then the virus will keep spreading with more infections and deaths. The price of crude is the rope in a tug of war between different forces and it is not easy to try and judge their effect on crude and the direction the price will react. For now the outlook is stable to bearish while line Y and channel KL hold. 

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In 1792 the U.S. Congress adopted a bimetallic standard (gold and silver) for the new nation's currency - with gold valued at $19.30 per troy ounce

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