Gold and Silver Eye Recovery as US Bond Yields Stabilize
As US bond yields stabilize, gold and silver are showing signs of potential recovery. The quiet Federal Reserve and economic calendar this week are limiting fresh yield drivers, creating a supportive environment for these precious metals.
- Strong inverse correlation with US rates supports metals
- Technical signals hint at potential bottoming
Overview
With markets currently pricing in just three Federal Reserve rate cuts by the end of next year and a lack of major economic events this week, US bond yields may struggle to see significant increases in the near future. This situation presents a unique opportunity for gold and silver to potentially rise after a period of volatility.
US Yield Surge Lacking Fresh Catalysts
The US economic calendar is light this week, with few impactful events that could change the interest rate outlook. Additionally, the Federal Reserve speakers’ lineup lacks influential figures, pointing towards a period of consolidation in bond markets.
Given the rapid increase in rates recently, potential buyers may be encouraged to enter the market, especially as tighter monetary policies are expected to slow down growth and inflation in the future.
Chart: US Yield Curve
Source: TradingView
Tipping Point for Growth and Inflation?
Recent multi-month highs in US yields, especially in shorter-dated bonds, indicate a potential shift in growth and inflation expectations. With fewer anticipated rate cuts, longer-term growth and inflation forecasts may begin to decline, influencing longer-term bond yields.
Real Treasury yields, which exclude inflation expectations, have risen above 2%, historically attracting buyers. These levels are appealing compared to riskier assets like equities, especially with the US economy’s annual growth rate hovering just below 2%.
Chart: US 10 Year TIP Bond
Source: Refinitiv
Attractive yields and a less accommodative monetary policy outlook could limit US bond yield increases in the near term. This shift may lead to upward momentum for gold and silver, given their close correlation with US rates, particularly in the 2-10 year range.
US Rate Outlook Driving Gold, Silver
The strong relationship between gold and US Treasury yields, as well as silver and yields, suggests a potential shift in precious metals prices based on interest rate movements.
Chart: Gold Correlations
Chart: Silver Correlations
If the current relationship between precious metals and US yields holds, a potential bottoming in metal prices could be on the horizon if yields have peaked in the short term.
Gold Trade Setup
Gold recently showed signs of a potential bottom with a hammer candle formation. Traders should watch for a morning star pattern confirmation for a bullish signal. Potential targets include former support levels around $2605.
Chart: XAU/USD-Daily
Silver Trade Setup
Silver’s price action mirrors that of gold, with a potential bottoming pattern forming. Long positions could be considered with stop levels below recent lows. Upside targets include the 50-day moving average and key resistance levels.
Chart: XAG/USD-Daily
Analysis
The stabilization of US bond yields presents an opportunity for gold and silver to potentially recover after a period of volatility. The Federal Reserve’s cautious stance and limited economic events this week indicate a period of consolidation in bond markets, providing a supportive environment for precious metals.
The close inverse correlation between gold, silver, and US yields suggests that a potential shift in interest rates could impact the prices of these metals. The recent increase in yields, particularly in shorter-dated bonds, may signal a tipping point for growth and inflation expectations, affecting longer-term bond yields.
As real Treasury yields rise above 2%, historical data shows that this level tends to attract buyers, especially amidst trend economic growth just below 2% annually. The combination of attractive yields and a less accommodative monetary policy outlook could limit US bond yield increases in the near term, potentially leading to upward momentum for gold and silver.
Traders should watch for key technical signals and price patterns, such as hammer candles and morning star formations, to identify potential entry points for long positions in gold and silver. Upside targets include former support levels and key resistance levels, with stop levels placed below recent lows for downside protection.