Whatever the driver, real yields are going a lot lower soon, and that means higher prices, likely new record highs, for gold, silver and the miners…
by David Brady via Sprott Money
Treasury Inflation-Protected Securities, or TIPS, are the inverse of real yields. When TIPS rise, real yields fall, and vice-versa. Gold has an inverse correlation to real yields, such that when real yields rise, Gold falls, and vice-versa. This means that TIPS and Gold are highly correlated. When TIPS rise, so does Gold, and they fall together too. I believe TIPS, represented here by the “TIP” ETF, are about to shoot higher and Gold will follow suit. Real yields will dump.
The RSI and the MACD are at extreme lows now that are consistent with the beginning of prior rallies in TIPS, i.e., far lower real yields, which typically translates into far higher prices for Gold.
The weekly chart shows that both the RSI and the MACDs are coming off extreme lows not seen since 2013, when TIPS last bottomed out. This too suggests a big rally is coming in TIPS and a sharp drop in real yields.
TIP bottomed out on June 14, 2022, following a big drop from its peak just over three months earlier in March. This was the peak in real yields at 0.89%. It also just happened to be the peak in the 10-Year Treasury at 3.48%. Based on the weekly and monthly charts, I believe this to be the bottom in TIPS and the peak in both nominal and real yields.
TIPS were extreme oversold on the RSI and positively divergent on both MACDs as of June 14, and the rally that ensued was wave 1 or A, imho. Now we’re in wave 2. While we don’t know where the bottom is yet, based on the weekly and monthly charts, once we bottom out, TIPS will take off in wave C or 3. Based on such prior episodes, I am confident that Gold will shoot higher from that point, Silver and the miners even more so. Based on all of these charts, I believe it is inevitable—and soon!
What could cause yields to plummet? A significant drop in yields that is faster than the drop in inflation expectations; a spike in inflation that far outpaces the rise in yields; or yields are capped by another round of QE by the Fed. Whatever the driver, real yields are going a lot lower soon, and that means higher prices for precious metals and miners—likely new record highs.