The oil price has fallen sharply in recent weeks, which has pulled inflation expectations lower. This has come also as the Federal Reserve is increasingly signaling a more hawkish positioning for tightening monetary policy in 2022. Subsequently, we have seen the outlook for precious metals deteriorating sharply.

  • Real bond yields remain choppy but with the hawkish Fed, any weakness in the US dollar will be short-lived.
  • The outlook for oil into 2022 will have a key influence on inflation expectations and also be a driver of precious metals.
  • Recent technical breakdowns on precious metals suggest at best a choppy outlook in the months ahead.

Oil lower, inflation expectations lower, “real” yields higher

For just over two weeks we have seen the oil price in sharp decline. Oil had already been in consolidation after the sharp August to October rally, however, since mid-November the selling pressure has been accelerated. This has been exacerbated by the emergence of the Omicron variant which has seriously questioned the outlook for oil demand.

Brent Crude Oil

This has also had a significant impact on the outlook for inflation expectations. Inflation remains a key concern for central banks, but the US 10 year Breakeven Inflation rate, which measures inflation expectations in the US, has fallen sharply. Although the US 10 year Treasury yield is also lower, inflation expectations have fallen more. Subsequently, “real” yields (US bond yields minus inflation) have risen.

real yields

This is important for precious metals because of the strong negative correlation they hold with real yields. Rising real yields are negative for gold and negative for silver. This is due to the perception that markets have of the opportunity cost of holding zero yielding precious metals.

There are increasing signs that the Federal Reserve is ready to accelerate its asset purchases wind down, even in the face of the omicron variant. Precious metals looked to be finding support as markets felt the Fed would be cautious with the emergence of omicron. However, this changed with the hawkish outlook from Fed Chair Powell in his Congressional testimony. Gold and silver have continued lower.

real yields/gold 

Oil outlook key for inflation expectations and subsequently precious metals

Oil has fallen amid news of countries such as the US, China, India, and South Korea looking to release oil reserves into the market. Increased supplies have weighed on prices. Then the demand picture has also been clouded by omicron.

How will OPEC+ respond moving into 2022? Decisions over the release of production curbs will be a key factor in how the oil price moves. Any reductions from the 400,000 barrels per day monthly production increase will be positive for oil. Furthermore, if omicron is seen as a fleeting scare, then the outlook for demand is also likely to improve again. 

The reaction of the oil price to these factors in 2022 could have a major impact on inflation expectations. Higher oil would increase inflation expectations again and this would be a drag lower on real yields again. All this would help to provide support for precious metals.

However, for now, today’s OPEC+ decision is not expected to see any change on the 400,000 BPD monthly increase. Therefore, the oil may struggle to recover near term. This would likely maintain the negative pressure that has taken hold on precious metals prices.

Gold struggling, silver negative

The technical outlook for precious metals is under significant strain right now. Gold may be performing better than silver (this tends to happen in falling markets), but both are under pressure.

Gold (MT5 code: XAUUSD) has not quite broken its recovery uptrend of the past 4 months. However, recent candles show the frustration of trading gold right now. Long upper shadows on the candles show intraday rallies that cannot hold before selling off. 

A closing breach of the trend line, along with the deterioration of RSI momentum into the 30s suggests that gold is likely now to be falling back into its old choppy-ranging formation of the past six months. A test of the range lows cannot be ruled out. A breach of $1758 re-opens the $1720 range floor again.


With Silver (MT5 code: XAGUSD) our disappointment is even more palpable. The formation of a head and shoulders reversal looked to be almost textbook in early November. However, the sharp deterioration in the outlook since then has completely wiped out recovery prospects.

Falling below the key higher low at $23.00 (the right-hand shoulder of the base pattern) has turned the outlook sour. This effectively re-engages a multi-month trading range again. The market is still in a selling phase that could be set for a test of the range low at $21.40. There is resistance now in the middle of the range between $23.00/$23.45 which will be seen as a pivot area.



The outlook for precious metals has deteriorated sharply in recent weeks. The momentum is still for further downside to being seen. For recovery to take hold, this would need inflation expectations to again pick up. And for that, there may need to be an oil price rally.