Large Specs Bet on Lower Yields, Boosting Gold and Silver Prospects

According to COT data released on July 31st, large specs, professional market participants such as hedge funds and commodity trading advisers, are heavily long Treasury futures. By going long, these big players are positioning for note prices to rise, which means they're leaning towards lower 2-year and 5-year yields.

Historically, this is a great condition for Gold and Silver. Earlier in the year, one of the biggest pressures on the metals was the fear that sticky inflation would force the Fed to stay hawkish, causing short-term yields to push higher and gold's momentum to slow down.

However, now the script may be flipping. The 2-year minus 30-year Treasury yield spread is trending lower, which suggests that immediate rate pressure is starting to cool. This is a positive sign for Gold, as it has generally done much better when this happens.

Looking at the chart comparing gold with the 2-year minus 30-year Treasury yield spread, we can see that gold tends to struggle when the line trends higher, indicating stronger pressure from near-term Fed policy. But now, the line is trending lower, and gold has broken below the 20 EMA band.

For Gold, this means returning to the 4,250-4,380 zone, where it previously found support before rejecting in late June. Daily Stoch RSI is flashing overbought after gold's sharp rise, leaving room for a short-term retracement. If gold pulls back towards the 20 EMA band and the triangle's former upper trendline near 4,120, it could be a bullish reaction.