Hey There Income Hunters,
Today is a historic day in the precious metals market!
The Bank for International Settlements (BIS) is enacting the Basel III regulatory framework — effectively eliminating global bank dealing desks’ ability to manipulate the silver and gold derivative markets.
The timing of the implementation coincides with a transition in the global monetary system away from a single global reserve currency — the U.S. dollar — to a basket of international digital currencies.
A few of the candidates in the reserve currency sweepstakes will potentially attempt to back their digital money with silver and gold. Those include China, the U.S., Europe and Russia and India.
Backing digital currencies with precious metals will not only be bullish for metals, miners and commodities — but very bearish for the U.S. dollar as more are sold for the new reserve currencies.
The U.S. dollar as represented by the U.S. Dollar Currency Index (Ticker: DXY) has been correcting higher since the Fed’s tough talk on inflation last week.
DXY is climbing into overbought territory, which represents an excellent opportunity to set up bearish option strategies going forward. Take a look:
Today I’ll review the precious metal chart patterns to set you up for potential trades in the weeks ahead as Basel III changes force a reposition in the markets.
CFDs on Gold (US$/Oz) (Ticker: GOLD)
Physical gold will be critical to watch as, for the first time in 40 years, it will be freed from the impact of the derivative markets
The derivatives markets were initially created to suppress the price of gold and thereby boost the value of the U.S. dollar.
So the elimination of the derivatives market should spur gold buying
Notice the GOLD chart below showing the bullish pattern that has developed recently:
- A most likely scenario is that gold will continue to carve out the right shoulder of a potential reverse head-and-shoulders pattern above the $1,750 support level.
- This head-and-shoulders for gold would be triggered on a break above the $1,920 level above and target gold moving above $2,100.
- We should see gold move above the 200-day moving average at $1,832 in the weeks ahead as the first positive sign that the dollar bear trend and the gold bull trend have resumed
- The alternative scenario, which cannot be ruled out with certainty, is gold tests the $1,675 level of support before heading higher…
CFDs on Silver (US$/OZ) (Ticker: SILVER)
The technical setup for SILVER sets is more bullish than GOLD.
Silver tends to lead rallies in precious metals and is also a hybrid metal, since it is also in demand for industrial use, including electric vehicles and solar energy. (It also tends to be more volatile than gold because of that.)
As you can see from the graph below, silver’s price continues to hold above the 200-day MA, and that provides an excellent risk/reward for bullish option strategies:
The $25.68-level coincides with 200-day MA and also the uptrend line connecting the April and June lows.
The $30-level above is resistance — but a move above $30 would trigger a sharp rally to the all-time-high at $50
Bring It Home
The next few weeks will be among the most important of 2021.
The removal of the precious metals derivatives market opens up a whole host of powerful global macro flows that will drive the markets for the remainder of the year and beyond.
Stay tuned to Power Income for information on the internal flows that will give us clues into the major trends developing as the Digital Currency Arms Race takes shape in the days, weeks and months ahead.
Questions or comments? Drop them below.
Good luck this week and as always …
Live and Trade With Passion My Friends,