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Gold and silver could break key resistance as US 10-yr yields turn lower


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Gold and silver moving into key resistance levels as hesitant BoE helps drive treasury yields lower.

BG_silver_gold_9844445.jpgSource: Bloomberg
 Joshua Mahony | Senior Market Analyst, London | Publication date: Tuesday 09 November 2021 

Precious metals on the rise as BoE holds off

Last week was supposed to mark the beginning of the tightening phase from monetary policy on both sides of the Atlantic, but the hesitancy shown by the Bank of England (BoE) has instead allowed traders to ease off on the idea of monetary tightening for now.

While the Federal Reserve (Fed) may have implemented a tapering policy, it is clear that this is very different from actual monetary tightening under a policy of rate hikes.

Looking at the relationship between the US 10-year treasury yield and the Fed Funds rate, we can see that yields often rise when the Fed starts raising rates. The shaded boxes highlight those counter-trend gains for yields at times of monetary tightening.

With that in mind, there is a good chance the BoE hesitation helps push that extended move higher into 2022.

FED_RATE_VS_YIELDS_91121.pngSource: TradingView


By inverting the US 10-year yield, we can see the inverse correlation between precious metals and treasury yields.

\While much of the July 2020 to March 2021 period saw yields increase to the detriment of precious metals, we are seeing that ease off here.

The delay in monetary tightening from the likes of the BoE and Fed could bring about a reversal of that rise in yields, meaning we could see some favour for precious metals.

Gold_silver_and_yields_91121.pngSource: TradingView


Looking at the silver chart, we can see how price has been rebounding from the $21.65 support level since late-September.

The current push is taking price back towards the $24.87 level, which if broken would seemingly pave the way for another period of strength here. Such a rally would likely take the form of either a retracement into the $26.18-27.16 zone, or a move back up into the range top of $28.75-29.86.

XAGUSD-Weekly91121.pngSource: ProRealTime


For gold, we are also rising into a key near-term resistance level, with the $1834 level the highest in almost five months. The past four occasions have seen gold falter at this level, but a break through here could bring about a fresh bullish outlook for the weeks ahead.

Set within the wider uptrend, there is a chance we could see a strong move higher if price breaks the likes of $1834 (and ultimately $1916).

XAUUSD-Weekly91121.pngSource: ProRealTime
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