One day of buying pressure doesn’t change the situation with precious metals.
Gold bugs were out in full force Friday, driving gold and silver to impressive gains that would excite even the least devout among them.
But don’t get your hopes up…
Precious metals stopped falling at a logical level of support.
Good, old-fashioned price memory triggered a standard response – nothing magical.
More importantly, nothing bullish.
Check out a custom index equally weighting gold, silver, and platinum:
The index is clinging to the lower bounds of a multi-year range as it retests its year-to-date lows, creating a logical place for buyers to support price across multiple timeframes.
Beneath the surface: Platinum hit a fresh 52-week low, while gold and silver fell roughly 1% and 3% last week, respectively.
It’s not upbeat data, failing to entice a long position at these levels.
Gold futures also hit the brakes at a potential support zone last week:
Gold slid into a critical retracement level, registering its lowest 14-day RSI reading since 2015.
If that’s not a somber note, what is?
The bottom of its multi-year range at approximately 1,675 comes into focus on a break below last week’s low of 1,823.
Silver, on the other hand, is already there.
Silver futures briefly undercut its comparable level of 21.40 last week before buyers showed up Friday.
The shelf of former lows marks a reasonable area for the selloff to pause. But it doesn’t mean price will stabilize in the coming weeks.
I believe silver is headed lower, toward 20.15 and perhaps back to the teens.
I’m tracking the March pivot lows for potential support and signs of continued weakness.
We’re witnessing fresh year-to-date lows and increased selling pressure if silver loses those March lows.
That’s the higher probability outcome if real rates and the dollar continue to rise.
The dollar and rates are the main reasons – aside from the absolute price charts – I have difficulty forming a bullish bias for precious metals.
Gold can catch higher during a rising rate environment, such as the Nasdaq during the first half of this year. But the gold-real yield relationship hinges on real rates’ pace, much like the stock market’s response to bond market volatility.
The US 10-year real yield has risen 100 basis points since late July.
That’s a face-ripper!
Gold will continue to struggle as long as real yields and the dollar experience an accelerated rise.
Friday’s gains for gold and silver no doubt ended the week on an uplifting note. But it’s not time to flip the book long precious metals – at least not yet.
