Risk-Reward Points Much Higher

Silver Price

Silver - Continuous Contract

The upward trend in Silver remains intact for now. It hasn’t closed below $30.34 yet.
The MACD Histogram is trending higher and is positively divergent. It is also coming off its lowest levels since Sept. 24, 2020, when Silver bottomed at $21.81, and prior to that, at $11.64 on March 18, 2020. We all know what happened after that.

Note the previous lows encircled in purple too. All led to at least a sizeable rebound.
However, Silver continues to struggle for now, and both the RSI and MACD Line are finding it difficult to make any headway to the upside, leaving open the possibility of lower lows.

Below $30.34, the support zone is $30-$29.75.

Bearish Sentiment and Historical Patterns

SENTIMENT has become increasingly bearish and is approaching levels seen at the bottom on Oct. 3, 2023, at $20.85. It proceeded to rally from there to the peak at $35.07. While Silver could go even lower in the short term, this suggests that Silver is not done on the upside yet.

COT Data and Recent Market Movements

Silver fell 5.6% last week. Banks slashed their net short position by 6k or 15% in just one week, and 25% over the past three weeks. They clearly want to cut their shorts as fast as possible.
The Funds dumped 8k or 25% in just one week, and a gargantuan 47% in the past three weeks!! This was the biggest drop since October 2023, when Silver bottomed at $20.85.

In fact, a lot of indicators resemble conditions at the October 2023 low, which is encouraging once we finally bottom in this correction.

Silver - Continuous Contract

The weekly chart is already correcting to the downside, and based on the MACD Line in particular (magenta), it has a long way to go yet. That said, the correction to date does allow for one more negatively divergent higher high.

As long as $29.75 holds, I’m still looking up towards $36 at a minimum. However, if Silver breaks below $29.75, it could drop to as much as $27, and then it heads up to $36+, imho.

Gold Price Analysis: Strong Recovery Indicators

Gold - Continuous Contract

Gold looks far more promising than Silver. Do I need to say anything here? Extreme oversold across all indicators and held above trend support (did not close below purple line).

The daily RSI and MACD Line hit their lowest levels since Gold bottomed at $1824 in October 2023 (sensing a theme yet?) and are now turning up.

Even more impressive is that the MACD Histogram in blue is rallying off its lowest level since September 2011 at $1535.

The remaining downside in Gold is negligible compared to the upside, imho: $2850-$3000.

Gold - Continuous Contract

Weekly Chart and Future Scenarios

Extreme overbought conditions coupled with negative divergences signaled the top was in on the weekly chart. Both MACDs hit their highest levels EVER! That said, I believe a negatively divergent higher high is still possible, which is supported by the daily chart.

However, what the weekly chart is screaming out loud is that if we do get a higher high, look out below next! Expect a massive correction to follow the next and final higher high or we just go straight down from here, which is a lower probability at this point.

Inter-Market Analysis: 10-Year Yield and DXY Correlations

Many believe the DXY has the biggest influence on Gold and Silver. While that may be true, the 10-Year yield is a principal driver of the DXY. Said simply, the 10Y yield can and does have a great deal of influence on precious metals also, either directly or indirectly via the DXY. This should be no surprise because the bond market and the foreign exchange markets are the biggest in the world, especially when compared to the relatively tiny Gold and Silver markets.

Current Correlation Coefficients (CC):

• GOLD/10Y Yield CC = -0.86, i.e., a near-perfect inverse correlation.
• SILVER/10Y Yield = -0.90, even more negatively correlated than Gold.

The negative correlation means that when the 10Y yield rises, the metals fall and vice versa. So, what is the 10Y yield telling us now?

Indicators Suggest a Yield Peak

All indicators are pointing down! We have the exact same conditions as at prior peaks in yield in May and October 2023 (there it is again). The current yield is 4.50%.

I believe the 10Y yield is about to peak and fall to ~3.50%.

Going back to what I said earlier, when the 10Y yield falls, the DXY typically follows, and up go the metals.

This supports my expectation for one more final higher high in both metals once we’re done with this correction.
I believe that yields will fall in days, perhaps a few weeks tops, taking the DXY south with it and sending the metals and miners to new highs.

DXY and Its Influence on Precious Metals

Here are the correlation coefficients for the DXY relative to both Gold and Silver:

• GOLD/DXY CC = -0.90, again near perfectly inverse.
• SILVER/DXY = -0.84, also near perfectly inverse.

Clearly, the inverse relationship has returned, whereby when the DXY falls, Gold and Silver rise and vice versa. So what is the DXY saying now?

US Dollar - Cash Settle

Current Trends in the DXY

It looks exactly like the chart for the 10Y yield. Extreme overbought and negatively divergent conditions matching prior peaks in May and October 2023 (again). The DXY shot up from 100 to 106.50 in the space of a month. It looks primed to fall to a lower low, perhaps even 94-92.

When the DXY does fall, based on its near-perfect inverse correlation to precious metals, Gold and Silver soar to new highs and a new record high for Gold.

Conclusion: Preparing for the Next Metals Rally

The risk remains down in Gold and Silver in the short term, but once we bottom, the conditions are ripe for another rally to higher highs above $2850 and $36 in Gold and Silver, respectively. However, when Gold and Silver do peak, run for the hills, imho. But let’s cross that bridge when we come to it. Absent a crash in stocks or a breakdown in the correlations, we can enjoy the trip higher to new highs once we hit bottom in the metals soon.

Invest in gold and silver today to secure your financial future.