USD’s Big Beautiful Verification

There was a sharp move lower in the USDX that triggered the move higher in gold yesterday, but none of them stayed in place for long. The USDX moved back up, and gold moved back down.

This might have seemed random or erratic to bystanders, but from the analytical point of view… It was a masterpiece.

The bearish forces simply failed to push the USD lower. This is a book example of how a verification of the breakout looks like.

It was big – the intraday moves were sizable.

And it was beautiful, because ultimately the USDX closed the day almost unchanged, and it already moved higher today.

This is completely unsurprising to you as you’ve been following my analyses and if you’ve been aware of my Peak Chaos theory. What we see now is just a technical confirmation of what was brewing for weeks.

The above continues to provide important context, because it very strongly implies that what we saw this month is NOT another correction (similar to the April-May one), but the start of another big wave up.

This year’s declines have been triggered by increasing uncertainty, which culminated with the post-Liberation-Day slide. After that, the USD Index pretty much traded sideways for months. Some – not aware of how confirmed breakouts work – might say that the sideways trading continues up to this day.

The thing is – tariffs are fundamentally bullish for the USD!

Simple as that.

Tariffs Flip the Script

The market reacted to uncertainty and chaos much more than it did to anything else. But this effect has already worn off – that’s what the Peak Theory is about in a nutshell. More chaos resulted in… Nothing. No new declines in the USDX, no new rallies in gold nor mining stocks. Yes, silver did soar, but that’s what silver does in the final stages of rallies – also medium-term ones.

As the tariffs are being implemented, the uncertainty is decreasing, while the positive fundamental effects start to kick in. It’s almost guaranteed to trigger rallies in the USD Index, and the only reason I’m using the “almost” word is because there are no certainties in any market.

If you have a position in mining stocks or are considering opening one – the above is of critical importance. The reason is clearly visible in the chart below.

The U.S. dollar and the values of mining stocks have been trading in opposite directions throughout the year.

Sure, sometimes there were delays between miners’ reaction to USD’s movement, but overall, they both moved in the opposite direction sooner rather than later.

In the very recent past (this month, before today), the GDXJ was trading sideways while the USD Index was moving up. Is this bullish for the GDXJ? No, it’s simply the opposite of what we saw in the previous month. In late June the USD Index moved to a new low, but the GDXJ didn’t move to new highs. Just as I wrote – the moves are not perfectly aligned, but overall, the correlation is strongly negative.

Today’s decline in the GDXJ proves it. The miners are only starting to catch up with what the USD Index has been doing lately.

Now, let’s connect the dots. The USD Index refused to decline despite ongoing tariff- and Fed-critique-based chaos, and it even rallied and broke above its declining resistance line. Gold hasn’t made a new high since April, and miners are already responding to USD’s signals. On top of that, miners are leading gold lower – GLD ended yesterday’s session higher, but the GDXJ ended it lower.

What does it mean for the miners? That the upcoming declines are going to be big, just like the rally in the USD Index.

A Bigger USD Breakout Ahead?

The breakdown below the flag formation that we see today confirms all this.

Of course, we could see a move back toward the lower border of the flag pattern, and if we do – it will change nothing. The big shift in the USD Index has already happened. The tide has turned.

The decline that is unfolding here is only the beginning – just like the rally in the USDX has only started.

The USD Index rallied after touching the lower border of the flag pattern – something that is generally a sign of trend’s continuation. Of course, we’ll know that for sure when the USDX breaks above the upper border (at about 109).

Can that really happen? Naturally. Even putting all the technicals aside, if tariffs are bullish for the USDX (they are) and there were announced in early April, then the USDX “should have” been rallying from the 104 level and not declining. If it declined, it was against the fundamentals and most likely based on the increased chaos regarding the U.S. policies in general. The latter is likely to be reversed as the tariffs are starting to be implemented, and their fundamental impact is starting to kick in. If there was no chaos-based discount, the USDX would likely be rallying from the 104 levels in April.

Since emotions (like fear based on perceived chaos) tend to move from one extreme to the other, what’s likely to happen now is that we’ll not only return to the ‘neutral’ levels from April, but that we’ll actually move toward to increased confidence in the USD associated with greed. This could easily take the USDX above the above-mentioned 109 level – even if we don’t get a major (2008-style) recession in the meantime.

And yes, the latter is still likely given tariff’s negative impact on world trade and world economy in general.

All in all, we have very good reasons to expect the USD Index to move higher – much higher – from here. Will miners shrug it off? Given what we’ve seen throughout this year – this seems unlikely. What seems more likely is that the GDXJ will move back to its April lows and then lower. If you’ve been considering making money on this decline – this might serve as a sign that the time to enter positions is running out.

Thank you for reading my today’s analysis – I appreciate that you took the time to dig deeper and that you read the entire piece. If you’d like to get more (and extra details not available to 99% of investors), I invite you to stay updated with our free analyses – sign up for our free gold newsletter now.

Thank you.

Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief