More Downside Still Ahead but the Worst Is Behind Us

The data says Gold and Silver have further to fall, but we’re far closer to the bottom than we are to the next record high.

POSITIONING

The Banks increased their net short position "again" to 194k contracts.

That is the highest net short position since April 2022 when Gold fell from 2000 to 1618. It is also far in excess of the net short position at the May 2023 peak when Gold fell from 2085 to 1824. In 2022, Gold didn’t bottom until the Banks had a minimum net short of 50k contracts. In 2023, it was $72k. That’s a huge amount of shorts to cover. It should come as no surprise that Gold continues to fall.

SENTIMENT

Since the peak on December 4, sentiment has been heading south, but it still remains relatively neutral. Bottoms in Gold and Silver are typically associated with extreme bearishness, which means sentiment has further to fall.

INTER-MARKET ANALYSIS

10Y Yield

The 10Y yield has turned up. The MACD Histogram in blue suggests a short-term pullback, then up we go to 4.25-4.40%. The RSI and the MACD Line are trending higher. Thereafter, I expect it to fall to lower lows.

DXY

It should come as no surprise that we’re seeing the same thing in DXY. It ran into resistance at 102.75 and is staging a short-term pullback, but I expect it to continue higher thereafter to 103.75-105, using a simple A-B-C correction formula. Thereafter, I expect the DXY to fall to the 90s.

Suffice to say in the short-term, higher yields and a higher DXY will continue to weigh on precious metals.

FUNDAMENTALS

Focusing on fundamentals as a catalyst for moves in the market, the CPI data is due out tomorrow. The Fed focuses on the core CPI numbers highlighted below, and specifically the year-over-year figure:

A friend of mine, the Silver Surfer, referred me to Steven Anastasiou (@steveanastasiou), who has displayed a consistent ability to forecast economic data by going through each of the underlying components. He expects core CPI growth to fall from 4.0% to 3.9% YoY. If he is right, and we’ll likely know before this article is published, this would be higher than expected. This could be the catalyst for the next leg down below 2000 in Gold and 23 in Silver.

But I don’t believe it ends there. Given all the data in hand, my target ranges for the bottom in Gold and Silver are 1962-1923 and below 22, respectively.

Once we bottom in or around these levels, I expect Gold to go to 2200-2400 and Silver to 28-30.