Gold and Silver Prices – The Pullback before the Catapult

Gold and Silver Prices - The Pullback before the Catapult

Gold And Silver Prices – The Pain Is Almost Over

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.

Funds in Silver last Tuesday

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…

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 AND SILVER TECHNICAL ANALYSIS

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

Silver and Gold daily charts back in December

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.

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

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.

DXY

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! – David Brady

Gold and Silver Prices – The Pullback before the Catapult

Peaks are an event. Bottoms are a process. This is typical in precious metals. There is no confirmation that the bottom is in for Gold or Silver. Silver is the closest, having established a double bottom around $22, but has now run into key resistance at $23.50. Whereas ~$1950 in Gold is still a very real probability.

POSITIONING

The most recent COT data was extremely bullish for Silver.

COT data extremely bullish for Silver

  • The Funds are now 9k net SHORT, up from 4k net short. Makes sense given the drop from $22.48 to $22.15.
  • This is the Funds’ biggest net short position since March 7, 2023, the day before it bottomed at $20.15 and rallied to the peak of $26.43 in just two months. Talk about bullish!

The Banks are now 2k net LONG

  • The Banks are now 2k net LONG, sufficient for “THE LOW”. But they may want to get even longer ahead of the coming rally.
  • The Eight-Week Delta of +15k is more than sufficient for a bottom too.
  • It is also the biggest Eight-Week Delta since August 2023 when Silver bottomed at $22.66 and rallied to $25.43.
  • This is all extremely bullish for Silver, which may explain the latest rally off the triple bottom at $22. The bottom could be in!

But keep in mind that positioning is just one indicator. It is bullish, but it can become even more bullish, i.e., the Funds add more shorts and the Banks add more longs.

Gold is also bullish, but perhaps not as much as Silver.

Gold is also bullish, but perhaps not as much as Silver.

  • Funds cut their net long position by 34k contracts from 68k, a 50% dump in one week.
  • The drop from $2051 to $2007 certainly squeezed out a lot of weak longs.
  • A net long position of 34k is the lowest net long position since Oct. 17, when Gold had just bottomed at $1824.
  • The Eight-Week Delta was a drop of 74k contracts, the biggest drop since Sept. 12, three weeks ahead of the bottom at $1824.

This is bullish and sufficient for at least a bounce, but also for the bottom.

This is bullish and sufficient for at least a bounce, but also for the bottom

  • The Banks cut their net short position by 23k to -120k, sufficient for a major low.
  • This is also the lowest net short position since Oct. 17, just after Gold hit $1824.
  • The Eight-Week Delta was 58k, above the minimum 50k for a bottom or at least a rebound.
  • This is the biggest delta since July 26, 2022, just after Gold bottomed at $1700.

Again, clearly enough for a bottom or at least a healthy rebound, i.e., bullish!

As for sentiment, Gold and Silver are both moderately bullish. Hardly what you expect at or near lows.

SILVER AND GOLD TECHNICAL ANALYSIS

Silver has run into resistance at $23.50, which also happens to be the 200-DMA, a powerful confluence of resistance:

Silver has run into resistance at $23.50

That said, if Silver can close above $23.50, the bottom is likely in at $22.

Gold hasn’t even tested its 200-DMA:

Gold hasn’t even tested its 200-DMA

No resistance of note has been broken in Gold yet either. The technicals also confirm that Silver is in pole position to lead the coming rally while Gold follows up.

INTER-MARKET ANALYSIS

The U.S. Treasury Bond market and the Foreign Exchange market are the two biggest markets in the world by far!  The Gold and Silver markets are specks of dust in the desert by comparison. The 10Y yield and the DXY are almost perfectly negatively correlated to the metals. When they go up, the metals go south. It’s that simple. So what does the immediate future look like for bonds and FX?

10Y Yield

10Y Yield

These are two primary scenarios I foresee in the 10Y yield:

  1. The yield rises to 4.45-4.50%. Then down it goes to 3.86%.
  2. The yield rises to 4.45-4.50%. Then it falls back to 4.19%. Then heads up to X, anywhere between 4.50-4.80% before heading to 3.80%ish.

Scenario #1 is the primary forecast based on the following A-B-C correction:

A-B-C correction

Once we hit 4.45-4.50%, then down we go in wave C to 3.86%.

Once we hit 4.45-4.50%, then down we go in wave C to 3.86%.

The only difference in the second scenario is that we get an irregular move up to X at 4.50-4.80% following the W wave down to 4.45-4.50%. Then down it goes to a 3% handle.

The big takeaway here is that bond yields are likely to move HIGHER in both cases, and that typically means the DXY will follow suit also.

If both the 10Y yield and the DXY head further north, the chances that Gold and Silver have bottomed drop precipitously. Said differently, we still have lower lows ahead.

DXY

the DXY

As long as the DXY does not close below the 200-DMA, given my bullish outlook for the 10Y yield, the risk is that the DXY is not done on the upside. It could go to $105 or even $106 before it collapses.

If that happens, both Silver and Gold would likely hit lower lows—“THE LOWS”.

While everyone is getting excited again about the prospects for Gold, Silver, and the miners, there is no confirmation that the bottom is in ‘yet’. In fact, if the two biggest markets in the world surprise everyone by heading north again, it would be a rude awakening for Gold and Silver bugs. This would definitely send sentiment crashing and provide the fuel for the genuine rally to begin thereafter.

In a proverbial nutshell, don’t get too excited about Gold and especially Silver just yet.

I’ll be happier than anyone else if the exact opposite happens and Gold and Silver go straight up, but I seriously doubt it. – David Brady

Please check back for new articles and updates at Commoditytrademantra.com



request your views on the above article

Comments are closed.

For More details on Trade & High Accuracy Trading Tips and ideas - Subscribe to our Trade Advisory Plans. : Moneyline

follow us

Leave us review on Google

markets snapshot


Market Quotes are powered by Investing.com

live commodity prices

Powered by Investing.com