Hey There Income Hunter,
A couple of months ago, Janet Yellen made a statement that the dollar index (DXY) could reach 110.
That’s not really much of a call when you control the currency’s value, but we’re almost there.
The banks, after all, act on the Fed’s behalf to create hundreds of billions of gold paper contracts to sell into the market to force the physical price lower. However, the link between derivatives and the physical metal is widening significantly, which is a sign the link may have to be broken …
When that occurs, the metals will trade freely based purely on demand of global central banks and investors – and the dollar will have no support under it.
I also think we are getting close to the point where the Fed will have to surrender the dollar to relieve the pressure the stronger dollar is having on emerging markets.
Today, I’ll share the data showing how out of line the dollar is historically and how it could speed up the Fed pivot away from its tightening policy.
Massive Selling of Paper Gold Elevated the Dollar
Of all banks to be doing the dirty work for the Fed, the culprit also had the biggest earnings miss this week …
That’s right, JPMorgan has been selling hundreds of billions-worth of precious metal paper contracts into the market this year to prop the dollar up.
You see, gold is the anti-dollar if the dollar trades up, gold is usually going down and vice versa.
So, the way the Fed is able to control the dollar is by having JPM sell tons of contracts of paper gold into the market.
Check this out …
JPM is the king of the derivatives, 3but in a crisis that is not the title you want because things can blow up awfully quick.
More proof of this manipulation of the dollar can be seen by the spread of the derivative market versus the physical market. Here is the physical silver spread vs. the paper silver market price.
Over 40% is the widest in decades, and the global regulators of the currency market, including the Bank for International Settlements will remove any connection between the two markets.
Once that happens, the dollar will lose its manipulated support below the market.
The chart below illustrates the US balance of payments. This is represented by its trade deficit, which is so negative that the dollar would need to be much cheaper for the US to ever have a chance of being a profitable economy again.
The Fed certainly knows this and they will surrender the dollar and let it float to its natural level … However, this will not happen until they are forced to pivot away from their tightening policy.
However, the pain inflicted by the strong dollar around the world, as seen by the protests in Sri Lanka, is getting intense and it will give the Fed the cover they need to set the dollar free.
Bring It Home
Live and Trade With Passion My Friend,
Griff