Hey There Income Hunter,

Of all the macro forces driving the markets, the US dollar is THE signpost to watch …

The dollar is still considered a safe haven because many of our global trading partners use it in exchange for goods and services. 

Yet, as of late, many developed countries –  including China, Russia, India and Israel – have communicated their desire to exchange alternative currencies for essential purchases like energy and food. 

Just yesterday one of Russia’s most powerful intelligence officers, Nikolai Patrishev, said that Russian experts are working on a project to back the ruble with gold and other commodities.

Alongside that bit of news came a drop in China’s COVID cases and an announcement that Beijing will deliver whatever is needed to aid growth in the Chinese economy.

Those are two major fundamental forces with the ability to reverse the rally we have seen in the dollar … and sure enough the dollar rolled over yesterday right at major support. 

This is a critical currency dynamic, as you’ll see today …

Plus I’ll share a low cost/high reward trade to consider to take advantage of the current conditions 

US Dollar Currency Index (DXY)

Often, technical signals in a market provide a leading indicator of a change in sentiment, which is later confirmed by macro fundamental shifts.

DXY rolling over yesterday may be signaling the beginning of a correction  …

Check out the long-term level at which DXY failed: 

Certainly, gold provides the greatest alternative to the dollar and it has proven that over hundreds of years.

I have frequently stated that a new global monetary system will include multiple currencies backed by gold and possibly oil.

This makes all the sense in a power structure structure that provides a fair and level playing field for all nations. 

Gold WILL Stop Inflation 

You can see it in the consumer sentiment numbers and the social outrage we are seeing due to the wealth destruction that inflation is inflicting on global consumers. 

This is now reaching a boiling point … 

And the Fed can never raise rates enough to stop an inflation rate at least 3x its target during an economic slowdown that is heading toward recession. 

The precious metals, meaning gold and silver, are what is needed. As a backing of a new basket of reserve currencies they would force a peg on all currencies in the basket so money printing would be held in check.

Notice the chart below showing the PHLX Gold and Silver Sector Index (XAU) … 

The index has held the 100-day moving average, and if the Fed and Powell say anything at Wednesday’s Q&A or initial statement that indicates anything less hawkish than they have been, we should see a renewed rally in silver and gold … 

XAU provides a good entry point for low risk/high reward trade in the VanEck Gold Miners ETF (GDX) …

GDX is the senior miners ETF and holds all the established, highly profitable and quality gold miners.

I think this ETF provides the most stable and attractive risk/reward in the metals sector. 

GDX Chart Pattern 

As you can see below, GDX has held up even better than XAU, providing an excellent set up with a close stop on a close below $33.50.

This play is heading into the Fed’s meeting, and historically during tightening cycles the metals sell-off prior to them and rally afterwards, so the timing is right …

GDX should rally beyond the meeting. By using trailing stops you could ride this one to new highs at $41. Depending on the option strategy you choose, you would have an excellent risk/reward. 

>> That’s where my Power Income Trader can help with trade ideas, selection and execution. <<

Bring It Home

Next week should bring more volatility.

The fact that SPY closed on the lows yesterday when it was month end – plus we had option expiration that technically should have led to short covering – is a major sign of real money liquidation overpowering the market.

Investors may have had enough, and the Biden administration must be looking at the Q1 GDP and the market’s reaction and asking how much more can voters take. 

With midterm elections in November, the administration will have to make a decision on how far to let the Fed go in an attempt to fight inflation before they come in and rescue their voters or risk losing both houses in Congress.

Stay tuned and have a great weekend and as always …

Live and Trade With Passion My Friend,

Griff