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Elastic Band in Everything is being Stretched to the Limit

precious-metals-analysis-men-is-running

All conditions are in place for a massive move higher in Gold and Silver. (List) But that doesn’t mean the bottom is in place. In order to have a high degree of confidence that the worst is behind us, we need to see a break of resistance, a higher high, and a higher low. I’ll go through the levels I’m watching to break to suggest the rally we have been waiting for is finally underway. But first, given the frustration of the bulls and the drunken stupor of the bears, let me re-iterate the multiple reasons why I believe the risk-reward in Gold and Silver is so heavily skewed to the upside.

 

Silver Prices

 

Daily RSI is at its lowest level since July 14, 2022, when it was at 18.23. It was followed by a positively divergent lower low at 17.40 on Sept 1, 2022, just 73 cents lower. This began the rally to 26.23, a gain of 50% is less than a year. The risk at 18.23 was 73 cents, or 4% lower, compared to a gain of 50% to follow. This is the definition of risk relative to reward at extreme lows and highs.

Sentiment in Silver has seldom been more bearish. It’s even worse than when it bottomed in September 2022. Silver is more bearish than when it hit $11 in March 2020. Although this does not signal the bottom is in, it tells us that it is not far away.

From a positioning perspective, the Hedge Funds were barely long on Sept 26th, ahead of this dump in Silver. They’re almost certainly short at this point, and the Banks are long. Like sentiment, this is bullish, too.

precious-metals-analysis-chart

 

The DXY is making new negatively divergent higher highs on the daily chart. The daily RSI is already falling from its highest level since the peak at 114.75. The same goes for extreme bullish sentiment. The Hedge Funds are loading up long on the dollar. All of which is bearish for DXY but bullish for the metals and miners.

 

precious-metals-analysis-chart

 

The weekly RSI in the DXY is at 67. A reading of 70 would likely signal the peak.

Meanwhile, the 10-Year Yield is also making negatively divergent higher highs in its weekly chart across all indicators. It is also extremely overbought at 75, from a yield perspective.

 

precious-metals-analysis-chart

 

From a price perspective, sentiment in bonds has seldom been lower in the past 10 years. Hedge Funds are near record short bonds, expecting higher yields, and the banks are almost equally long, expecting lower yields. This is bullish for bond prices going forward, meaning lower yields. When yields peak and fall, so goes the dollar, and up go the metals and miners.

While the data is heavily weighted to the downside in bond yields and the DXY, this does mean the top is in yet. The same goes for Gold and Silver in the opposite direction. In order to have a high degree of confidence that the bottom is in for the metals, we need to see a break of resistance followed by a higher low and a higher high.

The projection below is for illustration purposes only:

 

precious-metals-analysis-chart

The first resistance to break is 22.14, the prior low. Then, we need a higher low, followed by a higher high. A break of resistance at 24 would likely seal the deal that the low is in. Once we’re above the high of 26.43, 30 plus is next, IMHO.

In the meantime, Silver can still go lower. But a risk of another $2 or so compared to $10-40 higher is a no-brainer for me.

 

As for Gold Prices

 

precious-metals-analysis-chart

Given how extremely oversold Gold has become, I’m expecting a bounce and a positively divergent lower low prior to take-off. Support is around 1815-1820. The first key resistance to break on the upside in 1910-1915, followed by a higher low, then a higher high. The next resistance is 2000-2010. Finally, once we take out the record high, 2400-2500 is next, in my opinion, on the way to 3000. However, if and when I see that positively divergent lower low, I’ll be buying with a stop below the low.

 

Our Final Thoughts on Precious Metals Prices

 

In conclusion, everything is lining up for a massive rally in both the metals and miners, but we’re still waiting for confirmation that the low is in. But what we do know is that the risk on the downside is becoming more minuscule relative to the upside to come. So, while the Bears gorge on the few scraps left, I’m content sitting and waiting for the breakout to the upside, which, given the extent of the correction and its duration, promises to be spectacular.

 

 

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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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