Gold currently sitting at monthly resistance, will this be it?
As illustrated above, there have been 4 times since 2013 that XAUUSD has been rejected from the 1350 level. We're currently approaching a 5th test of this resistance level in the past 5 years and we should watch this level closely, as a break-through here could potentially lead us to a new all-time high in the near future. Another thing to look at on the above chart is the RSI . We have been constantly rejected over this same 5 year time period around the 63/64 level. With that being said, we have been making higher lows each time we've been rejected, and it looks like we could be on the cusp of a break-through of this level/triangle. RSI is the key indicator to watch with XAUUSD in my opinion, as a break of the 63/64 level should spark a quick jump in XAUUSD over the 1400 level.
Why is this happening one may ask? The Fed is raising rates (this theory has been debunked in one of my other posts, and will be attached below), the Trump administration has passed tax cuts, and the USD is the world currency. With this information, the media will have you believe that the USD should be rallying not sinking, and XAUUSD should be sinking not rallying.
Well the answer to these questions is fairly straight-forward. First of all, the USD sunk, and XAUUSD rallied during the last set of Bernanke rate hikes during the mid-to-late 2000's. Why? Well to begin, what is the main reason that the Federal reserve raises the Fed Funds Rate? To combat inflation . What economic climate does XAUUSD do best in? Times of inflation . This is why you see XAUUSD do so well during periods of rate hikes, because the REAL interest rate is negative. This means that inflation is higher than the nominal inflation rate, which has historically been great for XAUUSD. (Real Interest Rate = Nominal Interest Rates - Inflation)
Second of all, and the bigger issue to be honest, is the Trump Administration tax cuts. Yes on the outside, tax cuts are talked about being "great" for the economy, however it has been widely reported and mathematically proven, that these tax cuts will increase the deficit. The already $20 Trillion USD deficit, which is 2 times the size of the deficit during the Great Recession. So how does this effect the USD? Well, currencies hold value due to other parties having confidence in the currency itself. So essentially, countries are looking towards the United States, and seeing a ballooning deficit, which Trump has guaranteed to vastly expand over his term, and they're LOSING confidence in the USD. China (although it was mentioned to be "fake news", which I don't believe), has mentioned that they will no longer be purchasing US Treasuries. To add to this lack of demand in US treasuries, the Federal Reserve also noted that they will be unwinding their balance sheet (which hasn't really happened yet). All of this loss of confidence in the USD, and the US itself, has lead to a massive bond selloff (which is just getting started in my opinion).
This bond selloff has led to a sharp increase in rates to the 2.69 level, a level not seen since 2014. This increase in rates will begin to put pressure on US Equity Markets, markets that Janet Yellen already admitted are overvalued. This stock market crash will likely lead to another round of QE by the Federal Reserve and a decrease in rates which will literally destroy the USD, and push XAUUSD to a new high above the 1900 level ( QE was what pushed XAUUSD to this level from 2008-2011). Essentially, the Federal Reserve will sacrifice the USD for Equity Markets. Currently, debt levels in regards to American households, have passed the pre-crisis levels of the Great Recession during the Fiscal 2017 year (reaching above $13 trillion, with mortgage debt reaching $8.7 trillion, student debt reaching $1.3 trillion, and auto debt reaching $1.19 trillion). Therefore, the recent rise in rates will place pressure on US households as well.
Good luck to all.
Why is this happening one may ask? The Fed is raising rates (this theory has been debunked in one of my other posts, and will be attached below), the Trump administration has passed tax cuts, and the USD is the world currency. With this information, the media will have you believe that the USD should be rallying not sinking, and XAUUSD should be sinking not rallying.
Well the answer to these questions is fairly straight-forward. First of all, the USD sunk, and XAUUSD rallied during the last set of Bernanke rate hikes during the mid-to-late 2000's. Why? Well to begin, what is the main reason that the Federal reserve raises the Fed Funds Rate? To combat inflation . What economic climate does XAUUSD do best in? Times of inflation . This is why you see XAUUSD do so well during periods of rate hikes, because the REAL interest rate is negative. This means that inflation is higher than the nominal inflation rate, which has historically been great for XAUUSD. (Real Interest Rate = Nominal Interest Rates - Inflation)
Second of all, and the bigger issue to be honest, is the Trump Administration tax cuts. Yes on the outside, tax cuts are talked about being "great" for the economy, however it has been widely reported and mathematically proven, that these tax cuts will increase the deficit. The already $20 Trillion USD deficit, which is 2 times the size of the deficit during the Great Recession. So how does this effect the USD? Well, currencies hold value due to other parties having confidence in the currency itself. So essentially, countries are looking towards the United States, and seeing a ballooning deficit, which Trump has guaranteed to vastly expand over his term, and they're LOSING confidence in the USD. China (although it was mentioned to be "fake news", which I don't believe), has mentioned that they will no longer be purchasing US Treasuries. To add to this lack of demand in US treasuries, the Federal Reserve also noted that they will be unwinding their balance sheet (which hasn't really happened yet). All of this loss of confidence in the USD, and the US itself, has lead to a massive bond selloff (which is just getting started in my opinion).
This bond selloff has led to a sharp increase in rates to the 2.69 level, a level not seen since 2014. This increase in rates will begin to put pressure on US Equity Markets, markets that Janet Yellen already admitted are overvalued. This stock market crash will likely lead to another round of QE by the Federal Reserve and a decrease in rates which will literally destroy the USD, and push XAUUSD to a new high above the 1900 level ( QE was what pushed XAUUSD to this level from 2008-2011). Essentially, the Federal Reserve will sacrifice the USD for Equity Markets. Currently, debt levels in regards to American households, have passed the pre-crisis levels of the Great Recession during the Fiscal 2017 year (reaching above $13 trillion, with mortgage debt reaching $8.7 trillion, student debt reaching $1.3 trillion, and auto debt reaching $1.19 trillion). Therefore, the recent rise in rates will place pressure on US households as well.
Good luck to all.
