Gold & Silver Under Pressure as Yields Rise Amid Middle East Uncertainty

What to Know

• Rising US 10-year yields above 4.3% are pressuring gold and silver.
• Gold has broken below $4,600 and is testing short-term support.
• Silver remains range-bound between $70 support and $90 resistance.
• Higher yields increase the opportunity cost of holding non-yielding metals.
• Geopolitical tensions in the Middle East add volatility but not clear direction.
• Breakdown in silver below $70 could open move toward $65 (200-day EMA).

The background in the markets right now is that interest rates are climbing yet again as there is so much uncertainty in the Middle East.

Interestingly enough, as a side note, the United Arab Emirates decided to leave OPEC today. That was just an indication about how things are turning out in the Strait of Hormuz and that general area overall. We are probably going to see more rather than less chaos.

Every day, I get a handful of emails asking me questions as to why gold and silver is falling. The answer is quite simple. If you are buying large amounts of gold, you have to pay to store it. Bonds, on the other hand, give you a guaranteed return. It is a yield-offering asset. It returns yield. As that yield rises, it becomes a little bit more interesting place to put your money as opposed to when bigger firms buy tons of gold and store it somewhere. It became very expensive.

It is much more complex than that, but it gives you an idea that the interest rate market is most certainly driving in the markets and in fact almost always is. It is the interest rate market that is the most important, not Forex or even stocks or precious metals.

Gold

In this backdrop, we see the 10-year yield rising. It is well over 4.3% and as a result, the gold market has sold off. It has actually pierced the $4,600 level. It is trying to find a little bit of support here, and this is an area I’m watching because if yields drop, that should send buyers back into this market, keeping gold afloat.

Do not get me wrong; I am not saying it is a major swing waiting to happen. It might just be a little bit of a reversion to the mean. It might be for a day or two. If yield continues to climb, gold probably plummets.

Silver

Silver, of course, is still going to suffer the same problems with yields rising, probably more so in silver. Right now, I have a rough idea of a range between $70 on the bottom and $90 on the top. With higher yields, you get lower pricing. Again, it is the non-yielding problem that silver has. Eventually, we go back to the supply and demand issues, but right now nobody is worried about that.

We are all worried about the Middle East and all of the noise coming from there. On a breakdown below the $70 level, I think we go hunting for the 200-day EMA a little closer to $65. That probably accompanies a higher yield in the 10-year note in America and probably other places like Germany as well.

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