Reality Check

 

Hey There Income Hunters,

 

The Fed charade is over.

 

Last week at the Federal Open Market Committee meeting, central bank officials pretended to be pondering raising rates.

 

The result? A dollar bounce of 3% and gold correction of 8%.

 

Of course, #IncomeHunters understand US government debt is so high that if rates were raised, markets would crash.

 

So, the Fed talk is just posturing …

 

Still, now gold is up “only” up 52% from where the rally began in 2019 …

 

But by the end of the summer it will be challenging $2,000 again.

 

At least.

 

 

You see, the real money gold rally has not even begun — though we are getting closer, due to the reasons I outlined here.

 

But the evolution of the digital currency arms race is fluid and major news is just being picked up by the public …

 

Old news for #IncomeHunters, really, because we’ve been discussing it for weeks …

 

So, now for a brief review and then new information that is critical to your upcoming trading decisions …

 

Gold Is Not Just an Inflation Hedge

 

The moment I have been waiting for is getting ever closer.

 

In a recent letter about gold-backed digital currencies, I explained how the precious metal would shift to trading as a monetary currency as opposed to an inflation hedge …

 

And its important to understand who holds the gold 

 

It’s widely believed among analysts that China owns at least twice as much — and maybe even 3x more — gold than the US.

 

 

Shockingly, the Chinese haven’t been forthcoming with the actual number

 

China’s Gold Coming Out Party

 

Rumblings from Asia are that China has a strategy in place to announce the amount of gold it owns and an intention to back the digital Yuan with it …

 

Once declared, the yuan and gold would strengthen, though China would not want that right away.

 

So Beijing may want to hold gold down for a short while as they jettison a portion of their $3.2 trillion in US dollar assets.

 

Based on this timeline, I foresee the dollar collapsing and gold soaring toward the end of Q3.

 

A Chinese declaration of supremacy ahead of the Beijing Olympics would be totally on-band.

 

Gold Pricing Makes a Shift to the Yuan

 

An important signpost for the head-to-head battle between China and the US is a switch to pricing gold based on the US dollar-yuan exchange rate.

 

This is a recent phenomenon, as we have for years been focused intently on gold versus the 10-year rate adjusted for inflation (real rate) as the key driver for pricing.

 

The chart below shows the 10-year real rate (inverted, right scale).

 

Notice how the recent move in inflation higher (blue line) was not followed by a move higher in gold.

 

 

The shift had already been made away from the real rate to the USD/yuan exchange rate.

 

I have been waiting for this shift and I believe gold will track the digital yuan in a new global monetary system.

 

Gold is already tracking the USD/Yuan currency pair (Ticker: USDCCNY). Check out this correlation:

 

 

This  will be a huge help in trading gold going forward.

 

You see, China has been preparing for years to be the next reserve currency.

 

The Chinese are methodically following a strategic plan and now they are close to making their plan official.

 

The Transition to a New Global Monetary System in Process

 

      • China has already begun pegging the Yuan to gold. Every time they sell dollars to buy gold, the yuan strengthens to dollars, so gold strengthens to dollars.
      • China will soon officially convert yuan to gold. It only requires an announcement to the Bank for International Settlements (BIS), which  coordinates acknowledgement with other central banks.
      • China would then most likely revalue gold higher to devalue the yuan again coordinating with the BIS.
      • In order to maintain the higher valuation, China would reset the gold/yuan peg via algorithm-driven gold market making

Bring it Home

Last week, Option Pit Director of Education Andrew Giovanni and I presented a free swing at the fences.

We examined buying option vertical call spreads, which represent a purchase of an in-the-money strike and a sale of a higher out-of-the-money strike.

The play was to purchase SPDR Gold Trust (Ticker: GLD) vertical call spreads while trading the Volatility S&P Index futures (Ticker: VIX).

And the idea was to own the call spreads for free.

Andrew is incredible at scalping profits from volatility and, even though gold corrected further than anyone imagined, the strategy is solid. I have yet to sell any of my bullish gold option strategies.

Live and Trade With Passion My Friends,

Griff

 

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