Precious metals recovered strongly in November. Big base patterns and new recovery trends are forming. However, a retreat in recent sessions has brought markets back into key support areas. This is an important test for the sustainability of the recoveries.

  • For precious metals to continue their recovery, they will need US bond yields and the USD to turn lower.
  • The recoveries are at a key crossroads on the technicals. 

Falling US bond yields and USD are key to a precious metals recovery 

Gold recovered in November as US bond yields have turned lower and the USD bull run has turned corrective. 

Higher bond yields have helped to drive a stronger USD throughout 2022. “Real” yields (that’s bond yields minus inflation) moving higher are the key here, as they have a strong positive correlation with the USD. But if you look at both real yields and the USD compared to the movement in gold, there are strong negative correlations. Higher real yields and a stronger USD are negative for gold.

Here we see the US 10-year “real” yield versus gold. There is a strong negative correlation (averaging around -0.38 in the past 12 months). Real yields have stopped rising in the past month and could now be starting to roll over. This is supportive of a gold recovery.

It is a similar story to the USD and gold. Again a strong negative correlation (averaging c. -0.37). Since April, the two charts are almost a mirror image of each other. As such, the recent decline in the USD has helped gold to recover.

It is not only gold though. Silver also has a strong negative correlation with US real yields. The correlation is not quite as strong but is still consistently negative.

This would all suggest that if real yields do begin to fall and the USD also turns lower, the conditions are set for continued recovery for precious metals.

Precious metals recovering well

We can see in the performance of the precious metals, that in the past month it has been fairly choppy, but there is a recovery underway. Only Palladium has been lagging in the overall performance. Despite this though, it has been a rollercoaster and the recent move lower in the past week needs to begin to find consistent support.

Can it last?

The recovery has been tested in the past week. A pullback on metals such as gold and silver has come back into important breakout levels and started to build support.

The breakout on Gold (XAUUSD) above resistance at $1730/$1735 was an important improvement in the technical analysis outlook. The end of a downtrend phase and a new uptrend phase potentially forming. The move completed a base pattern which implies $1844, whilst initial resistance is at $1786. 

What is needed now is the formation of higher lows. The bulls will be looking for the old resistance of the breakout to become supportive. The price rebounding from $1732 is a strong development as it also came with the RSI holding above 50. Looking further forward the 55-day moving average is an important gauge of support (having been a basis of resistance since May). If the move lower fell below $1680/$1690 support it would seriously question the recovery.

Silver (XAGUSD) is also in a recovery outlook. Two weeks ago, the breakout above the $20.85/$21.25 resistance was important for the recovery. The most recent pullback has been an unwind into the breakout which is now supportive. Moving back higher again today helps to strengthen that as support. Holding the RSI above 50 would be a strong signal for continued recovery. 

We would be looking for a retest of the recent high at $22.24 before a bigger test of resistance at $22.51. If the price fell back below $20.00 which is an old mid-range breakout, it would seriously question the continued recovery.  

This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

All trading carries risk.