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In the Short-Term, Expect Things to Stay Touch-and-Go for Ethereum

Under pressure since November, many are waiting for Ethereum (CCC:ETH-USD) to bottom out. With its latest uptick in price, some may believe the proverbial…

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Under pressure since November, many are waiting for Ethereum (CCC:ETH-USD) to bottom out. With its latest uptick in price, some may believe the proverbial dust has started to settle.

Source: Filippo Ronca Cavalcanti / Shutterstock.com

However, I wouldn’t jump to that conclusion. My long-term view on Ether (what the coin itself is named) still stands. If cryptocurrencies are truly the “next big thing,” and not just a fad, this is one of the best vehicles out there for exposure. Those with a shorter time horizon though may want to be careful.

The U.S. Federal Reserve’s plan to raise interest rates are still putting pressure on it. Another upcoming move from the Fed (not interest rate related) could weigh on it too. To top things off, there’s more token specific concern/risk that could affect its performance.

As a result, it may make more dramatic price moves than its main “established coin” peer, Bitcoin (CCC:BTC-USD). For instance, make a trip back to prices well below $3000 (it’s at around $3,350 today).

Those looking to hold it for years may still find now a worthwhile time to enter/add to a position. But if you’re looking to get in at its near-term bottom? You may want to take your time before dabbling in it again.

The Fed Could Affect Ethereum in More Ways Than One

As is the case with all cryptocurrencies, there’s one factor that’s going to determine whether it moves higher or lower. That’s the Fed, due to its plans to raise interest rates several times this year.

Yes, Ethereum, like its peers, has already seen a big slide, since the Fed made it known late last year that it planned to tighten monetary policy, to fight inflation. Alas, a more hawkish Fed may yet to be fully priced into cryptocurrencies. Analysts at several investment banks now believe there will be four interest rate hikes instead of three. The central bank’s reversal of its accommodative policies could be more sweeping than first expected.

As higher rates will likely sustain the move from “risk-on” to “risk-off,” ETH, BTC, and the rest could again head lower. Along with this, like I hinted above, there’s something else coming from the Fed that may also impact digital asset prices.

Per the central bank’s chairman, Jerome Powell, within a few weeks the Fed could finally release its report on central bank digital currencies (CBDCs). Admittedly, the establishment of a Fed-backed crypto would have a greater impact on privately-controlled “stable coins” than on more general cryptos like this one. Still, this could have a negative impact on crypto prices across the board. More news on this topic may help to re-heighten concerns that the traditional financial system will make other moves to fold blockchain finance into it.

A Token-Related Risk That’s on The Table

Even with my view that Ethereum is one of the better cryptos to own, I will concede that the perception that it’s “DeFi dominant,” or “unsinkable,” may be starting to crack.

As my InvestorPlace colleague Alex Sirois recently argued, rival platforms, like the so-called “Ethereum killers” such as Cardano (CCC:ADA-USD), Polkadot (CCC:DOT-USD), Solana (CCC:SOL-USD) are quickly catching up. As each one implements enhancements/upgrades, they could continue to eat away at its lead. Yes, the “2.0” upgrades could help to counter this rising competition.

Yet as Sirois also noted, a recent report from J.P. Morgan suggests that with the time its taking to fully implement its upgrades, it may be too little, too late. So, am I saying, that the term “Ethereum killer” may be literal? I wouldn’t go that far. I’m doubtful that the ETH token’s blockchain is a dinosaur in the making.

I will say, however, that growing concern about its “DeFi dominance” could move it lower. At the very least, prevent it from climbing back toward past highs. Assuming there are no more delays with putting in place the upgrades, this may be temporary. But if the next phase (The Merge) gets delayed once again? Even if the above-mentioned Fed-related issues get fully absorbed, this more token-related risk could push it down to lower prices.

Bottom Line

It’s not set in stone that Ethereum’s so-called “killers” will fully grab the DeFi crown from it. The above-mentioned pessimism about the upgrades could prove to be overblown. This year, and next year, the developers of this token’s blockchain could successfully put them online, enabling it to maintain its lead.

Still, while the long-term may remain promising, expect near-term price movements for Ethereum to stay unpredictable. Tread carefully if you are approaching this as a trade rather than as a long-term investment.

On the date of publication, Thomas Niel held LONG positions in Bitcoin and Ethereum. He did not hold any of the other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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Precious Metals

Oklahoma to Consider Holding Gold and Silver, Removing Income Taxes

Legislators in Oklahoma aim to protect state funds with physical gold and silver and remove capital gains taxes from gold and silver transactions  ?…

(Oklahoma City, Oklahoma — January 20, 2022) – An Oklahoma state representative introduced legislation today that would enable the State Treasurer to protect Sooner State funds from inflation and financial risk by holding physical gold and silver.

Introduced by Rep. Sean Roberts, HB 3681 would include physical gold and silver, owned directly, to the list of permissible investments that the State Treasurer can hold. Currently, Oklahoma money managers are largely relegated to investing in low-yield, dollar-denominated debt instruments.

Other than Ohio, no state is currently known to hold any precious metals, even as inflation and financial turmoil accelerate globally. Yes, Oklahoma’s own investment guidance prescribes safety of principal as a primary objective for investment of public funds.

“Currency debasement caused by federal monetary and fiscal policies has created an imminent risk of a substantial erosion in the value of Oklahoma’s investment holdings,” said Jp Cortez, policy director of the Sound Money Defense League.

“With most taxpayer funds currently held in debt paper carrying a negative real return, Oklahoma would be prudent to hedge today’s serious inflation risks with an allocation to the monetary metals.”

HB 3681 simply adds the authority to hold physical gold and silver bullion directly – and in a manner that does not assume the counterparty and default risks involved with other state holdings. Rep. Roberts’ measure does not grant authority to buy mining stocks, futures contracts, or other gold derivatives.

Additionally, HB 3681 prescribes safekeeping and storage requirements. The State Treasurer would hold the state’s bullion in a qualifying, insured, and independently audited depository, free of any encumbrances and physically segregated from other holdings.

Oklahoma has become a sound money hotspot, already earning 11th place on the 2021 Sound Money Index.

The Sooner State ended sales taxes on purchases of precious metals long ago. This week, Sen. Nathan Dahm introduced SB 1480, a measure to remove Oklahoma state income taxes from the exchange or sale of gold and silver sales.

The Sound Money Defense League and Money Metals Exchange strongly support these pro-sound money measures in Oklahoma and are actively working to ensure their success. Tennessee, MississippiKentucky, and Alabama are just a few of the other states fighting their own sound money battles in 2022.

      











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Economics

Jamie Dimon Gets Pay-Rise To $34.5 Million In 2021, Goldman Banker Bonuses Surge 40-50%

Jamie Dimon Gets Pay-Rise To $34.5 Million In 2021, Goldman Banker Bonuses Surge 40-50%

After scraping by on just $31.5 million a year in…

Jamie Dimon Gets Pay-Rise To $34.5 Million In 2021, Goldman Banker Bonuses Surge 40-50%

After scraping by on just $31.5 million a year in both 2019 and 2020, JPMorgan’s board has decided that CEO Jamie Dimon deserves a pay rise in 2021 (well, have you see what inflation is doing to the cost of living?).

The 10% pay-rise notably outweighs inflation though as the package includes $28 million of restricted stock tied to performance, an annual base salary of $1.5 million and a $5 million cash bonus – pushing his total compensation up 10% YoY to $34.5 million.

“Amid the continued challenges of Covid-19 and supply chain disruptions, under Mr. Dimon’s stewardship, the firm continued to serve its clients and customers around the world,” the bank said in the filing.

It did so “during a time of unprecedented business demands, while supporting and providing a safe work environment for its employees and investing in and executing on strategic initiatives.”

As a reminder, both Dimon and his top deputy, Daniel Pinto, were awarded special bonuses last year to entice them to stay in their roles for a “significant number of years.”

And one more thing… While one can crow about JPMorgan earning $48.3 billion last year (a 66% jump from the prior year), we note that almost $10 billion of that came from reserve releases after potentially soured loans predicted at the start of the pandemic never materialized… all thanks to trillions of dollars in buying and commitments The Fed bailed the banks out with.

Ok just one more thing… JPM stock rose 25% in 2021, but underperformed the S&P 500 and the KBW Nasdaq Bank Index.

“We will be competitive in pay,” Mr. Dimon said last week on a call with analysts.

“If that squeezes margins a little bit for shareholders, so be it.”

JPMorgan is not alone in ramping up banker pay…

Following comments from Goldman Sachs’ CEO this week that the bank would not shy away from handing out hefty bonuses to retain top talent, Reuters reports that Goldman increased its annual bonus pool for top-performing investment bankers by 40% to 50%.

That is on top of the one-time bonuses we previously reported for Goldman’s top-talent.

Bottom line: it’s good to be king.

Tyler Durden
Thu, 01/20/2022 – 17:16


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Precious Metals

Gold Uptrend Confirmed

It’s been a turbulent start to the year for the major market averages, with many sectors like Retail (XRT) and Staples (XLP) being hit by inflationary…

It’s been a turbulent start to the year for the major market averages, with many sectors like Retail (XRT) and Staples (XLP) being hit by inflationary pressures and continued supply chain headwinds while worries about rate hikes leading to a cool-down in valuations in tech. However, one asset class that is holding its ground is gold (GLD), which is up 1% year-to-date, outperforming the Nasdaq by 700 basis points. This outperformance appears more than overdue, with gold typically performing its best when real rates are deep in negative territory, in line with the current backdrop. Let’s take a closer look below:

(Source: YCharts.com, Author’s Chart)

Looking at the chart above, we can see that real rates continue to trend lower and are now sitting at their lowest levels in decades, spurred by continued high single-digit inflation readings. This backdrop has typically been very favorable for gold, given that investors are not getting interest elsewhere, meaning there is no opportunity cost to holding the metal, and there is an opportunity cost to holding cash. The one impediment to gold’s performance, though, has been the fact that the major market averages have been climbing higher with a relentless bid, allowing investors to park their cash safely in the market.

Chart, line chart

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However, since the year began, this does not appear to be the case, and gold is massively outperforming the S&P-500, as well as growth and value ETFs. This has created a perfect storm for the metal, and its outperformance can be highlighted by the above chart, which shows gold recently breaking out to new multi-week highs vs. the S&P-500. A new trend upwards following a period of significant underperformance has typically led to sustained rallies in the gold price, with the most recent example being February 2020 ($1,500/oz to $2,050/oz). Hence, this is a very positive development for the gold bulls.

The key, however, is that gold’s outperformance vs. the S&P-500 is not simply due to the S&P-500 being in a bear market and gold trending lower, but just losing less ground. The good news is that this is not the case, with the monthly chart for gold showing that it is building a massive cup and handle, with much of its handle being built above its prior resistance. This is a very bullish long-term pattern, and a successful breakout above $2,000/oz would target a move to at least $2,350/oz. 

Chart

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(Source: TC2000.com)

Meanwhile, if we look at the yearly chart above, we can see an even better look at the cup and handle pattern and why the discussion that gold is dead or in a deep downtrend is simply incorrect. While one can certainly make the case that gold has gone nowhere over the past 18 months and the daily chart remains volatile, the big picture has rarely looked better in the past several decades, and zero technical damage has been done. So, for investors looking for an asset with a favorable fundamental backdrop that’s also sporting a very attractive looking long-term chart, I am hard-pressed to find anything as attractive as gold among the 150+ ETFs and assets I track. 

Chart, line chart

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(Source: TC2000.com)

So, what’s the best course of action?

One of my favored ways to play the gold sector is Agnico Eagle Mines (AEM). The reason is that it has one of the best margin profiles sector-wide; the potential to increase production by more than 30% over the next nine years, and it operates out of the most attractive jurisdictions globally. This is evidenced by the fact that AEM should be able to grow annual gold production from ~3.4 million ounces to ~4.5 million ounces between now and 2030 and has 50% margins at a $1,800/oz gold price. 

Chart

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(Source: TC2000.com)

As the chart above shows, AEM’s technical picture continues to improve, with the stock building a 10+ year cup and handle base atop its prior multi-decade breakout level. This is a very bullish pattern, and a breakout above $70.00 would target a move above $95.00 in the next two years. So, with the stock consolidating near the right side of its cup and trading at a very attractive valuation of 1.0x P/NAV, I see this as an attractive entry point. Notably, AEM also pays a ~2.7% dividend yield, double that of the S&P-500. For those preferring to invest in gold, I continue to expect a trend of higher lows, with the $1,750/oz – $1,780/oz area representing a very low-risk buy zone. 

It’s no secret that GLD has massively underperformed other ETFs over the past 18 months, and with many focused on the last shiny thing and having recency bias, it’s no surprise that gold remains out of favor. However, the best time to buy the metal is when it’s been hated and has corrected sharply from its highs, making this an attractive entry point. Given that most other ETFs could use a rest, and the fundamental backdrop remains very favorable for gold, I remain medium-term and long-term bullish, and I would not be surprised to see gold above $2,080/oz this year. 

Disclosure: I am long GLD, AEM

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. Given the volatility in the precious metals sector, position sizing is critical, so when buying precious metals stocks, position sizes should be limited to 5% or less of one’s portfolio.

The post Gold Uptrend Confirmed appeared first on ETF Daily News.

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Author: Taylor Dart

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