Catapult Ready but One More Pullback First

Peaks are an event. Bottoms are a process. This is typical in precious metals. There is no confirmation that the bottom is in for Gold or Silver. Silver is the closest, having established a double bottom around $22, but has now run into key resistance at $23.50. Whereas ~$1950 in Gold is still a very real probability.

POSITIONING

The most recent COT data was extremely bullish for Silver.

• The Funds are now 9k net SHORT, up from 4k net short. Makes sense given the drop from $22.48 to $22.15.
• This is the Funds’ biggest net short position since March 7, 2023, the day before it bottomed at $20.15 and rallied to the peak of $26.43 in just two months. Talk about bullish!
  
• The Banks are now 2k net LONG, sufficient for “THE LOW”. But they may want to get even longer ahead of the coming rally.
• The Eight-Week Delta of +15k is more than sufficient for a bottom too.
• It is also the biggest Eight-Week Delta since August 2023 when Silver bottomed at $22.66 and rallied to $25.43.
• This is all extremely bullish for Silver, which may explain the latest rally off the triple bottom at $22. The bottom could be in!

But keep in mind that positioning is just one indicator. It is bullish, but it can become even more bullish, i.e., the Funds add more shorts and the Banks add more longs.

Gold is also bullish, but perhaps not as much as Silver.

• Funds cut their net long position by 34k contracts from 68k, a 50% dump in one week.
• The drop from $2051 to $2007 certainly squeezed out a lot of weak longs.
• A net long position of 34k is the lowest net long position since Oct. 17, when Gold had just bottomed at $1824.
• The Eight-Week Delta was a drop of 74k contracts, the biggest drop since Sept. 12, three weeks ahead of the bottom at $1824.

This is bullish and sufficient for at least a bounce, but also for the bottom.

• The Banks cut their net short position by 23k to -120k, sufficient for a major low.
• This is also the lowest net short position since Oct. 17, just after Gold hit $1824.
• The Eight-Week Delta was 58k, above the minimum 50k for a bottom or at least a rebound.
• This is the biggest delta since July 26, 2022, just after Gold bottomed at $1700.

Again, clearly enough for a bottom or at least a healthy rebound, i.e., bullish!

As for sentiment, Gold and Silver are both moderately bullish. Hardly what you expect at or near lows.

SILVER & GOLD TECHNICAL ANALYSIS

Silver has run into resistance at $23.50, which also happens to be the 200-DMA, a powerful confluence of resistance:

That said, if Silver can close above $23.50, the bottom is likely in at $22.

Gold hasn’t even tested its 200-DMA:

No resistance of note has been broken in Gold yet either. The technicals also confirm that Silver is in pole position to lead the coming rally while Gold follows up.

INTER-MARKET ANALYSIS

The U.S. Treasury Bond market and the Foreign Exchange market are the two biggest markets in the world by far!  The Gold and Silver markets are specks of dust in the desert by comparison. The 10Y yield and the DXY are almost perfectly negatively correlated to the metals. When they go up, the metals go south. It’s that simple. So what does the immediate future look like for bonds and FX?

10Y Yield

These are two primary scenarios I foresee in the 10Y yield:

1. The yield rises to 4.45-4.50%. Then down it goes to 3.86%.
2. The yield rises to 4.45-4.50%. Then it falls back to 4.19%. Then heads up to X, anywhere between 4.50-4.80% before heading to 3.80%ish.

Scenario #1 is the primary forecast based on the following A-B-C correction:

Once we hit 4.45-4.50%, then down we go in wave C to 3.86%.

The only difference in the second scenario is that we get an irregular move up to X at 4.50-4.80% following the W wave down to 4.45-4.50%. Then down it goes to a 3% handle.

The big takeaway here is that bond yields are likely to move HIGHER in both cases, and that typically means the DXY will follow suit also.

If both the 10Y yield and the DXY head further north, the chances that Gold and Silver have bottomed drop precipitously. Said differently, we still have lower lows ahead.

DXY

As long as the DXY does not close below the 200-DMA, given my bullish outlook for the 10Y yield, the risk is that the DXY is not done on the upside. It could go to $105 or even $106 before it collapses.

If that happens, both Silver and Gold would likely hit lower lows—“THE LOWS”.

While everyone is getting excited again about the prospects for Gold, Silver, and the miners, there is no confirmation that the bottom is in ‘yet’. In fact, if the two biggest markets in the world surprise everyone by heading north again, it would be a rude awakening for Gold and Silver bugs. This would definitely send sentiment crashing and provide the fuel for the genuine rally to begin thereafter.

In a proverbial nutshell, don’t get too excited about Gold and especially Silver just yet.

I’ll be happier than anyone else if the exact opposite happens and Gold and Silver go straight up, but I seriously doubt it.