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First, let's start at the very "macro-level" by looking at Yield Curves in the US and India.

When the 10-Year - 3-month Government Bond Yield Spread is steepening, the market is pricing in higher growth and inflation expectations. When it's narrowing, the market is pricing in lower growth and inflation expectations.

Click on chart to enlarge view.

Since March, these Yield Curves have been steepening, telling us that market participants are expecting growth and inflation to move higher.

And what typically performs well in an inflationary environment? Commodities (including Precious Metals), Emerging Market stocks, and other cyclical assets.

In an inflationary environment Gold, Silver, and other Commodities have a clear tailwind behind them.

With that as our background, let's take a look at prices on an absolute basis.

Here's a weekly chart of Gold which is sitting in the middle of our downside risk management level of 44,500 and upside price objective that was met in August near 56,840. From a structural perspective, the trend is clearly higher, but for risk management purposes we don't have a clear level to trade against right now. (For more info on Fibonacci and how the levels in this chart are determined, check this out.)

To define our risk we'd rather be buying weakness back towards support at 44,500 or wait for additional strength and buy new all-time highs above 56,840, both with long-term targets of 76,700.

Now, let's take a closer look at the daily chart. Currently, prices are consolidating above a rising 200-day moving average, momentum is in a bullish regime, and there's a clear level of support to trade against at 49,200. If there was ever a time for prices to reaccelerate to the upside, it would be now.

If prices do break 49,200, then that's the market telling us that Gold needs more time to correct (either through time, price, or both) before it's ready to start its next leg higher. In other words, we have to get out of the way as there's more downside risk and opportunity cost ahead.

Silver is in a very similar situation as Gold.

Here's the weekly chart showing our upside objective near 73,900 which was met in August and downside support near 58,000 which is holding.

Despite that, Gold's lack of support at current levels is an issue given the two typically trade in tandem. As a result, we don't want to use 58,000 as our level to trade against in Silver. Instead, we want to look down towards the initial breakout level near 48,000.

From a weekly perspective, we'd rather be buying weakness back towards support at 48,000 or wait for additional strength and buy new all-time highs above 73,900, with a target of 100,000.

And on a daily basis, we've got a similar situation to Gold. If prices can continue to hold above 58,000, then the benefit of the doubt remains in favor of the bulls, with a target back near 73,000-74,000.

If, however, prices do break 58,000, that is the market telling us that Silver needs more time to correct before it's ready to start its next leg higher. In other words, we have to get out of the way as there's more downside risk and opportunity cost ahead.

Now that we have our risk management levels and price objectives outlined for the short and long-term, let's take a look at two final ratios that are important to the Precious Metals market.

First is the Silver/Gold ratio. During bull markets in Precious Metals, we typically see Silver outperforming Gold.

Much like the Small-Cap/Large-Cap ratio in the stock market, outperformance from Silver is a sign of risk appetite among Precious Metals market participants.

Earlier this year we saw this ratio confirm a bearish to bullish reversal in this ratio, which suggests that as long as prices are above 1.07, then Silver should continue outperforming Gold.

This is positive for Precious Metals in general.

And finally, we're looking at Gold relative to the Nifty 50. The strongest assets are not just attractive on an absolute basis, but they should also be outperforming their alternatives. For the time being, it appears that the uptrend in Gold relative to stocks has now broken.

As long as prices are below former support/resistance at 4.40, there's no reason to expect Gold to outperform stocks over the intermediate/long-term.

Conclusion:

From a structural perspective, the weight of the evidence continues to suggest Gold and Silver are headed much higher over the long-term.

In the short-term, however, there are some mixed signals that have yet to be confirmed by prices breaking support. If and when that happens, we need to take a more cautious approach until they regain their footing and begin their next leg higher.

In either case, our risk management levels and targets are very well-defined, as are the "macro-level" factors that we believe will continue to drive the performance of Precious Metals going forward.

Thanks for reading and please let us know if you have any questions.

Allstarcharts Team