Follow Gold to Glimpse Crypto’s Future

by Juan Villaverde
By Juan Villaverde

The Federal Reserve pivot-induced rally that started in November 2022 — October, for the stock market — finally seems to be running out of steam.

For now.

And for the story of how and why this came to pass, there is no more prescient narrator than gold prices. See below:

Gold as a Leading Indicator for Crypto

Figure 1. Daily gold prices in U.S. dollars.
Click here to see full-sized image.

 

Why gold?

Because it’s had a phenomenal rally since the fourth quarter (of last year) — with an authoritative breakout above its orange downtrend line on Nov. 7.

This early November breakout was a canary in the coal mine for crypto. What it revealed was the liquidity cycle quietly shifting, as macro conditions were about to transition from supertight to looser.

At the time, I said that if this was confirmed by other asset classes, 2023 would be a very different year from 2022. And sure enough, gold’s breakout was confirmed by the bond market on Dec. 15 — and later, by crypto assets, on Jan. 13.

Indeed, up until last week, gold had been running pretty much straight up for 90 days, a remarkable feat in itself. But this was also a sign of a market ready to top out and head south for a while.

To that end, observe the wavy red line. Prices broke below it decisively last week.

The message from the gold market — which made a key cycle low last year, and came within a whisker of new all-time highs in this run-up — is simple:

The rally should continue after a temporary setback. Possibly to new all-time highs.

Why bring up gold at all? Because, like crypto, it is exquisitely sensitive to Fed policy and U.S. dollar liquidity conditions.

Furthermore, its chart is clearly bullish. And because of crypto’s correlation to the yellow metal at critical inflection points, we can infer that the outlook for crypto is also bullish. At least in the first half of 2023.

That gold is now retreating tells us to expect a shift in the macro narrative over the next few weeks. Traders and investors will shift from exuberant celebration of a Fed pivot … to fear that Chair Jerome Powell is still on the inflation-fighting warpath after all.

But that will be just the cycle talking. Which you can see in market sentiment as well as in price charts.

So, consider yourself warned:

As gold rolls over, so will bonds, and so will crypto. And there WILL be fear.

Not the kind of deep despondency we saw late last year. But the clamor of the bears will intensify once again, nonetheless.

As I’ve said before, most people are very slow to notice the changes in trends. Often, it takes them many months to realize something has indeed changed.

But their skepticism is basically a healthy thing. It is dry powder that helps keep the rally going.

Markets love to climb a wall of worry. It’s only when everyone has bought in that you ought to get concerned. But as I write, we’re very far from this being an issue.

In the near term, the outlook remains the same as in recent weeks: Look for crypto prices to top out in the near future. The correction that follows will be a buying opportunity.

How do I know this?

Because we had critical breakouts above TWO key resistance levels just last month. That shifted Bitcoin’s (BTC, Tech/Adoption Grade “A-”) trend to BULLISH in the medium term, after being NEUTRAL since late September.

Now, BULLISH doesn’t mean “new bull market.” It simply means that we can expect a general uptrend in crypto prices.

What lies between now and then is an 80-day-cycle pullback … which is where Bitcoin seems headed next. Altcoins are expected to follow.

So, keep an eye on your favorite projects and set alerts on the Weiss Ratings website to get notified about price movements so you know when it’s time to act.

And, of course, keep checking in here for daily updates on the broad crypto market.

Best,

Juan

About the Editor

When econometrician and pro trader Juan M. Villaverde first applied his algorithms to Bitcoin years ago, he discovered a regular cyclical pattern. And he has since used it to build the world’s first crypto timing model based on cycles. Thanks to his analysis, the Weiss Ratings team has accurately picked the top and bottom of major crypto booms and busts.

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