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Real Yields Are About to Dump, Gold Rallies

gold in front of white screen

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Treasury Inflation-Protected Securities, or TIPS, are the inverse of real yields. When TIPS rise, real yields fall, and vice-versa. Gold has an inverse correlation to real yields, such that when real yields rise, Gold falls, and vice-versa. This means that TIPS and Gold are highly correlated. When TIPS rise, so does Gold, and they fall together too. I believe TIPS, represented here by the “TIP” ETF, are about to shoot higher and Gold will follow suit. Real yields will dump.

TIP Monthly

tip monthly

The RSI and the MACD are at extreme lows now that are consistent with the beginning of prior rallies in TIPS, i.e., far lower real yields, which typically translates into far higher prices for Gold.

TIP Weekly

tip weekly

The weekly chart shows that both the RSI and the MACDs are coming off extreme lows not seen since 2013, when TIPS last bottomed out. This too suggests a big rally is coming in TIPS and a sharp drop in real yields.

TIP Daily

tip daily

TIP bottomed out on June 14, 2022, following a big drop from its peak just over three months earlier in March. This was the peak in real yields at 0.89%. It also just happened to be the peak in the 10-Year Treasury at 3.48%. Based on the weekly and monthly charts, I believe this to be the bottom in TIPS and the peak in both nominal and real yields.

TIPS were extreme oversold on the RSI and positively divergent on both MACDs as of June 14, and the rally that ensued was wave 1 or A, imho. Now we’re in wave 2. While we don’t know where the bottom is yet, based on the weekly and monthly charts, once we bottom out, TIPS will take off in wave C or 3. Based on such prior episodes, I am confident that Gold will shoot higher from that point, Silver and the miners even more so. Based on all of these charts, I believe it is inevitable—and soon!

What could cause yields to plummet? A significant drop in yields that is faster than the drop in inflation expectations; a spike in inflation that far outpaces the rise in yields; or yields are capped by another round of QE by the Fed. Whatever the driver, real yields are going a lot lower soon, and that means higher prices for precious metals and miners—likely new record highs.

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About the Author

David Brady has worked for major banks and corporate multinationals in Europe and the U.S. He has close to thirty years of experience managing multi-billion dollar portfolios including foreign currency, cash, bonds, equities, and commodities. David is also a CFA charter holder since 2004.

Using his extensive experience, he developed his own process utilizing multiple tools such as fundamental analysis, inter-market analysis, positioning, Elliott Wave Theory, sentiment, classical technical analysis, and trends. This approach has improved his forecasting capability, especially when they all point in the same direction.

His track record in forecasting Gold and Silver prices since has made him one of the top analysts in the precious metals sector, widely followed on Twitter and a regular contributor to the Sprott Money Blog.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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