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