The bull case for gold as bitcoin captivates America

Bitcoin is the new gold. The Federal Reserve is tightening. Interest rates are going higher. So, there is no need for gold anymore.

Wrong.

Sure, the yellow metal has declined nearly 7 percent since September, now trading below its 200-day moving average for the first time since July, the Fed is about to hike rates and, finally, tax reform legislation is in the works.

It's easy to forget that gold, now facing pressure ahead of the central bank's meeting, was up as much as 18 percent this year.

We're not concerned.

After violating support near $1,260 and $1,270, gold's price action began something of a cleansing, working off the overextended net-long ratio of 20 to 1 (speculative long positions to short ones). The Commitment of Traders report for the week ended Dec. 5, released last Friday, reflected a reduction in this ratio by 33 percent. Furthermore, weakness in gold during previous years for the month of December is not uncommon for a number of reasons, including hawkish Fed language, tax-selling and strong seasonals in the equity market.

This year, we expect a less hawkish or even a potentially dovish Fed, coupled with overshadowing political issues heading into the new year.

The final piece of the bullish puzzle is gold's strong seasonality for the month of January; gold has finished the month of January higher in nine of the last 12 years.

Of those years, the first it failed to do so was in 2010, when it rose by more than 6 percent in January before finishing about 1 percent lower. The second year gold ended lower was in 2011, when it gained as much as 35 percent when it hit all-time highs in September.

We believe that gold, should it move lower over the next three weeks, should not be a death sentence for the metal, but instead should be viewed as a buying opportunity.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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