Gold and Silver Defy Expectations as US Dollar and Yields Surge

Precious metals showed resilience in the face of macroeconomic stress last week, defying expectations in a challenging environment. Gold and silver prices rose despite a sharp rebound in the US dollar and a hawkish Federal Reserve decision that normally would have derailed them. The surprising performance raises questions about their potential behavior under more favorable conditions.

According to data from LSEG, US two-year yields surged 36.4 basis points over the past ten sessions, placing the move around the 95th percentile of observations going back to 1976. This increase in yields would normally have a negative impact on gold and silver prices.

However, gold rose 0.68% and silver climbed 2.76% over the five-session window ending Friday, despite US two-year yields rising 9.9 basis points and the DXY gaining 1.11%. Historically, in similar scenarios, gold has fallen by an average of 1.58%, while silver has declined by an average of 1.79%. The current performance is a departure from these norms.

The relationship between gold, silver, and Nasdaq futures has also become more positive, with their correlations reaching historical extremes. Gold's 10-day correlation with Nasdaq futures sits at around +0.79, placing it near the 98th percentile historically, while silver's 20-day correlation is near the 99th percentile.

For gold, a breakout above its falling wedge structure has confirmed a resumption of its prior bullish move despite still-tough macro conditions. The immediate focus overhead is $4,400, followed by $4,510.80 and key technical levels such as the 200-day moving average and Fibonacci retracements.

Silver also broke out last week, pushing above its August downtrend and minor resistance zone around $67.50. A clean break through this level could lead to a push towards the 23.6% Fibonacci retracement of the January to June bear move at $70.58 or the 200-day moving average at $73.15.