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Peak Yields and DXY to Signal Lows in Gold and Silver

Magnifying Glass Analyzing Stock Chart

While I’m not sure that the bottom is in place yet, especially in silver, let me show you why I believe it is close.

 

The Correlation of 10-Year Yield to Gold and Silver Price

 

The yield on the 10-Year Treasury Bond is highly correlated to gold, which in turn is highly correlated to silver. The relationship is inverted, meaning that when yields rise, gold and silver tend to fall, and vice-versa for falling yields.

 

us-treasury-yield-index

 

The weekly chart above shows that the 10-Year yield is making negatively divergent higher highs across all indicators. It’s now on its second negatively divergent higher high. This typically means that the next big move is down.

 

us-treasury-yield-index-bear-flag

 

The daily chart shows more or less the same negative divergences on both the RSI and the MACD histogram, with a peak in place on the MACD line. Now this doesn’t rule out another negatively divergent higher high, but it also suggests that the next direction is lower.

The fact that the 10-Year is in a Bear Flag pattern adds weight to the argument that lower yields are coming, which is supportive of higher gold and silver prices.

If that were not enough, the monthly chart agrees also:

 

us-treasury-yield-index-markup

 

Multiple negative divergences yet again, with a long way to fall for the RSI and the MACD line. The MACD histogram is already ahead of the game. It looks like a date with 2% handle is on the cards, based on the 200-month moving average.

Furthermore, the Banks remain massively long bonds, in anticipation of lower yields.

Simply put, it looks like yields are topping out here, and lower yields typically mean higher gold and silver prices. They also tend to mean a lower DXY.

 

DXY and Its Impact on Gold and Silver

 

The dollar index, or DXY, is also inversely correlated to gold and silver prices. It will be difficult for the DXY to rise much further if the 10-Year Bond yield heads south.

 

usd-cash-settle-forex

 

Previous peaks in the DXY have coincided with overbought RSI readings on the weekly chart. At ~60, DXY has room to go higher. But resistance at 106 stands in the way.

 

usd-cash-settle-forex-markup

 

Although the DXY continues to climb on a daily basis, the RSI has been capped at around 70, which means overbought and negatively divergent, and the MACD histogram is clearly falling and therefore also negatively divergent. At the same time, the MACD line is at a level consistent with recent peaks in the DXY.

While the DXY has room to move higher on the weekly chart, negative divergences are piling up, and sentiment in the dollar is extremely bullish. This is at the same time that the 10-Year yield is looking toppy. All of this suggests that the DXY is running out of runway, and the odds favor it turning down very soon.

The combination of falling yields and a falling DXY would be bullish for gold and silver should this scenario play out in the coming days or weeks at most.

 

Gold Outlook

 

gold-continuous-contract-eod-cme

 

Gold remains relatively resilient. As long as it remains above 1900, I’m only looking up. But a break of 1900 would mean at least 1875, or worst case, closer to 1800.

 

Silver Outlook

 

silver-continuous-contract-eod-cme

 

Like gold, but to a greater extent, silver remains under pressure from higher yields and a rising DXY. My preferred scenario is that it breaks the 200D MA and the green support trendline dating back to the bottom in September 2022. This would ensure maximum bearishness and provide us with the final low that acts as the launching pad to $30 plus next. That lower low would be somewhere between 22-21, worst case 20.75, IMHO.  

 

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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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