The Pain in Silver & Gold Is Almost Over

I am going to change things up this week by starting with the conclusion. I believe Silver is about to bottom below $22 but above $20, most likely with a $21 handle. Gold will follow somewhere between $1962 to $1923, most likely around $1950.

In other words, one more lower low and up we go.

The levels to break on the upside in Silver to confirm the low is in place are the prior peaks at $23.15, $23.50 (200-DMA), and $23.72.

The same goes for Gold between $2040-$2060 and, of course, $2090.

POSITIONING OF THE FUNDS IN SILVER

The positioning of the Funds in Silver last Tuesday was already bullish, although it obviously allowed for slightly lower lows in price.

The Banks’ net position did not change much. It remained basically zero, neutral. This was bullish, but as I stated at the time, it could become even more bullish if the Banks decide to go long Silver.

Given the drop from $23.15 to $22 on Monday and Tuesday, aided by hawkish comments from Powell and the higher-than-expected Core CPI, it is not a stretch to believe that the Banks are now long. A further drop in price to a lower low and they are likely set up perfectly for a big rally.

More interesting was that the Funds (the dumb money in the chart above) went from 4k contracts net long to 5k net short last week. When the Funds are net SHORT, that is bullish. If the Banks now have gone from neutral to long, it is also likely that the Funds are even more short now with more to add if we hit a lower low. Again, extremely bullish for Silver. Not so good for the Funds—in the wrong place at the wrong time as always.

Suffice to say that the positioning alone suggests a bottom in Silver is imminent.

Turning to Gold…

Banks increased their net short position by 7.5k to 144k contracts. This was the first increase in five weeks.

They increased their net short position even though the Gold price was flat. That was bearish short-term for Gold.

The fact that the Funds added 12k contracts and their net long position is now 68k is also bearish short-term.

But given that the Gold price was $2055 when this data was recorded and has since fallen to $2000, the Banks have probably cut their net short position while the Funds cut their net long position.

History shows that a net short position of 120k contracts or less would be sufficient for a major low. Could the Banks have reduced their net short position by 24k contracts since Feb. 6? Sure they could, especially if Gold falls further to $1950.

What is clear is that the positioning in Silver is far more bullish than that in Gold, and this is one of the reasons why I believe Silver will lead the next rally higher. The Gold:Silver ratio is going to head south, imho.

GOLD & SILVER TECHNICAL ANALYSIS

I first posted the following Silver and Gold daily charts back in December. They have both played out almost perfectly.

I expect support at $22 to break in the next few days, and by then the RSI will be extreme oversold at ~$30 or lower. Meanwhile, the MACDs are both pointing upward and are positively divergent. This provides the fuel for the pending rally.

The equivalent chart for Gold, like the positioning, is less bullish.

If and when Gold closes below $2000 and falls to $1950 or thereabouts, the RSI will most likely be oversold at $30, sufficient for a major low. The MACD Histogram in blue is positively divergent, which suggests the next big move is higher. But the MACD Line at the bottom of the chart needs to turn up too to confirm the bottom is in. With all of that said, I do believe Gold will bottom out shortly and head higher.

SENTIMENT remains relatively neutral in both metals, but it is falling and the next moves down in price should make them both sufficiently bearish for the pending move up.

INTER-MARKET ANALYSIS

10-Year Yield

The 10Y yield still has a high inverse correlation to the metals. Higher yields mean lower Gold and Silver prices. But I believe the rally in the 10Y yield is coming to a close. The RSI allows for one more pop that will take it to an overbought level of $70. This should coincide with the bottom in the metals. The MACD Histogram is also negatively divergent, signaling that the next turn down in yields is coming. When that happens, Gold and Silver head north.

DXY

The 10Y Yield is also highly correlated to the dollar. Therefore it is no surprise that when the 10Y yield rises so does the DXY. The DXY is also inversely correlated to the metals.

The DXY may have peaked or it has one more leg higher before it dumps to the $90s, a drop that would also fuel the next rally in the metals.

The RSI has already tagged the extreme overbought level of $70, and the MACD Histogram has already been falling and is negatively divergent, signaling that the risk-reward is clearly down next.

One more higher high first would coincide nicely with the lows in the metals.

Either way, both the 10Y and the DXY are heading down soon, which should propel Gold and Silver higher.

In summary, everything is lining up for one more push lower in the metals, followed by a massive rally in Gold and Silver to follow. Finally!