Investing.com’s stocks of the week
The US dollar-debasement narrative is in full swing, as evidenced by the price of precious metals. However, one look at bitcoin, which should also rally on the debasement narrative, tells you something is amiss. We do not buy into the dollar-debasement narrative; instead, we believe much of the activity in gold and bitcoin is more closely related to speculative flows.
Given our view, we think of both as trading vehicles and not hedges against calamity. Thus, the question we raise is whether this is the right time for gold holders to swap for bitcoin. To help time such a swap from gold to bitcoin, we use technical analysis of the bitcoin-to-gold price ratio, annotations, and a few bullet points to show you what we see.
- Trend lines: The shorter-term green trend line, which supported bitcoin over gold for three years, gave way late last year. This was the first sign the ratio could reverse its upward trend. The ratio is now resting on a longer-term trend line (red). We suspect this line has a better chance of supporting the ratio.
- Head and shoulders: The three yellow dots indicate an upward-sloping head and shoulders. The distance (200) from the head to the neckline (green) equates to the expected decline from this pattern. The orange-dotted arrows indicate that the current ratio has reached its target.
- The RSI, MACD, and 100-day Rate of Change (ROC) are all extremely oversold.
The prices of gold and bitcoin are extremely volatile. Therefore, those wanting to time a swap from gold to bitcoin must exercise caution. Moreover, while the trends and indicators point to a reversal, the narrative remains strong, and the divergence between gold and bitcoin can certainly persist.
The Week Ahead & CPI
CPI was slightly better than expected. The monthly core CPI rate was 0.3% as expected, but the inclusive CPI was 0.1% better than expectations at 0.2%. The year-over-year CPI rate fell to 2.4% from 2.7% last month.
The graph below, courtesy of Bloomberg, shows the primary contributors to the CPI calculation. Core services constitute the large majority of CPI, and as shown, they are starting to decline. This is a promising trend that, if it continues in time, should help CPI reach the Fed’s 2% target sooner than expected.
This holiday-shortened week will be much quieter on the economic front than last week. The FOMC minutes on Wednesday will likely show the Fed is in no hurry to lower rates. That said, it will be interesting to see if they mention the divergence between Truflation and CPI. PCE Prices will be released on Friday. Current expectations are in line with Friday’s CPI data.
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