Hey There Income Hunter,
A major signal for high probability trading opportunities changes in cross-asset relationships that have stood the test of time.
For instance, I am always analyzing the relationships between the US dollar, gold, and iShares 20 Plus Year Treasury Bond ETF (Ticker: TLT). The relationship between those three may diverge from time to time – and those anomalies present low-risk/high-reward trading opportunities.
I think we are at a point where the dollar index (Ticker: DXY) is breaking above its downtrend line to the upside, which is a bullish pattern for DXY.
This break higher in DXY means gold may be ready for a correction to the downside before continuing its mighty bullish trend higher.
Today, we’ll look at where to buy gold on a correction, which may come THIS week.
The Break Higher in DXY
I have a bearish butterfly trade on in the Euro because I think the TLT price is correcting lower, which means Treasury bond interest rates are correcting higher.
Higher interest rates are short-term bullish for DXY. As you can see in the chart below we are getting confirmation of a higher dollar index.
The higher dollar and higher interest rates will put pressure on gold, just as bullish sentiment in gold is very high.
A downturn in gold is a tremendous opportunity to position for a longer-term uptrend in the precious metal as central banks around the world are accumulating gold to strengthen their foreign currency reserve status.
This transformation in the global monetary system is a game changer for gold …
When the core reserve currencies including the dollar, euro and yen are losing their purchasing power, gold is the only “real money” alternative that can hold its value.
Notice the negative relative strength index (RSI) divergence from gold’s price below. This signals a correction ahead.
This week will be a very illiquid trading period for the market. Trading desks will be light and if investors need to liquidate gold holdings we could reach the target price zone above quickly.
If you believe in the longer-term bullish scenario for gold, as I do, then be ready this week to position bullishly in the target zone above.
Bring It Home
I am very bullish on precious metals and believe gold will reach $2,500 in 2023 at a minimum. I also think we will see silver reach $35+ after a correction towards the 20-22 range.
Once the targets are hit, consider call calendar and diagonal option spreads, which will reduce your basis price and add income along the way …
Stay tuned for updates on a historic shift out of financial assets into real assets as the US monetary and fiscal policy are forced to ease in 2023. In the meantime …
Live and Trade With Passion My Friend,
Griff