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Interest Rates

The Fed is planning three interest rate hikes in 2022, but it may be tough for them to do that, given the headwinds the economy faces. Josh Lipsky of the Atlantic Council Geoeconomics Center, said in a recent interview on Yahoo! Finance, said, “That is ambitious; three rate hikes.”

If you look back 30 years, the economy has been accelerating from the previous quarter when rates were hiked. But in 2022, that is not going to be happening, Lipsky said. Hiking rates into a slowdown from the year before is unlikely; they may do the first one, but the next two are unlikely.

Other major central banks are also considering tightening and interest rate hikes. Lipsky thinks that any global tightening is going to be fractured, with Europe, for example, going much more slowly than the Fed. “It’s not going to be this unified rebound,” Lipsky said.

Digital Money

“Money is going virtual,” Lipsky said. Ninety central banks representing 94% of the global economy are developing central bank e-currencies, so this is not just Bitcoin, it’s a central bank thing. How people interact with banks and the government is going to change.

WeChat is now supporting the digital Yuan, which has 800 million users. Ten percent of Chinese citizens now have digital Yuan WeChat wallets, according to Lipsky. However, it is a domestic only product and can only be used in China. A big question is whether foreigners can use the digital Yuan and, if so, can they take it home?

The digital Yuan represents a threat to foreign companies in China, since if the government dislikes something they do, the Chinese can block all payments to that company or hold their assets hostage.

Ten-Year Note

Patrick MontesDeOca, CEO of the Equity Management Academy, said that interest rates appear to be moving higher with the Ten-Year Note trading above 1.80, up 2.2%.

“We’ve seen a fairly sharp increase in interest rates,” MontesDeOca said.

The low was 0.32 in 2021. Technically, the market appears to be putting in a major double bottom on the 10-Year Note.

The 30-Year Bond is at 2.144. The lowest yield in the past year or so was .70 on January 3, 2020.

“We are seeing an inversion in the yield curve,” MontesDeOca said.

Particularly in the past few weeks, the 10-Year Note rate has moved faster than the 30-Year Bond rate. So the cost of money on the 10-Year is going up faster than the 30-Year. The Fed appears to be managing the long-term rates to keep them low, while allowing the shorter-term rate to rise.

The Feds are tapering about $30 billion a month until March. The key is how fast interest rates are going to go up.

Demand for goods and services continues to be very strong, but Omicron, which may be the end of this pandemic, is causing major numbers of hospitalizations. People are not going out as much. Vaccinations are required, but there is resistance to requiring vaccinations to work or to go out. The shortages of supplies and goods appear to be continuing. Prices continue to rise, and it appears for a range of reasons, people are starting to spend less, which is not good for the economy. Crude oil is at $80 a barrel, which is also not good for the economy.

It seems similar to when the Fed raised rates in 2016-7, which was the bottom of the gold market. If the Fed raises rates a quarter point this year, we could see gold respond in the same way. In 2016-7, the Fed then decided, since the markets had a tantrum, to reduce interest rates again. The Fed then moved rates down aggressively.

Gold

More recently as the Fed has pursued massive stimulus, gold made a low in April 2020 at $1267 and then rallied up to $1704, retreated again and rallied again above $2089 in 2020. It then went down to $1673 on March 8, 2021. It appears to be matching Fibonacci retracements and technical predictions. Since March 2021, the bottom, gold rallied up through May 24, 2021. The low established a major bottom for a big uptrend. On September 27, 2021, the seasonal low was made at $1721. From that low, the market has been trading in this major uptrend channel. Now we are reverting again from another low and it looks like it could rally to the upper end of the uptrend channel above $2000.

For the weekly Variable Changing Price Momentum Indicator (VC PMI) numbers, the daily average is in a bullish price momentum within a weekly bearish price momentum. Gold is around the average price, so we do not trade around the average. We wait for the market to go to an extreme above or below the average to trade, where the probabilities are much higher that the market will revert to the mean. $1786 is the daily Buy 1 level, just below the market and is a level of support. From that level, there is a 90% probability of a reversion back up to the mean.

The targets we have this week to take profits on our swing or position trades are at $1826 and $1855. We are prepared to add to our long positions at $1774 to $1752, or to get on the long side.

Bitcoin

Bitcoin is in a reversion mode from $39,470. It did not quite come down to the weekly Buy 1 level of 38,943. The low of 39,470 was made, and it found buyers, so the market started moving up again. Bitcoin at 40,000 appears to be a level that offers tremendous support and is a great area at which to add to your position. There is a high probability from here that the market will revert back up.


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