Gold, silver track dollar moves at historical extremes

• Gold, silver correlations with dollar near historical extremes
• DXY sits just above an important support zone
• US inflation next key risk event for markets
• Disorderly yen carry trade unwind remains a left-tail risk

Gold and silver have essentially become a play on directional movements in the US dollar over the past month, and especially the past fortnight, with the strength of the inverse relationship pushing towards historical extremes.

Dollar relationship moves into rare territory

While the inverse relationship between gold, silver and other precious metals with the US dollar has been evident for decades, the strength of the relationship is unusually high right now.

Source: LSEG

Over the past 10 trading days, gold’s correlation with DXY has fallen to around -0.88, while silver’s stands at -0.83. Those readings sit around the 3rd percentile for gold and 4th percentile for silver relative to their respective histories, meaning the inverse relationship has only been stronger during a very small proportion of comparable windows.

The 20-day relationship is also tight, with gold at around -0.76 and silver at -0.73, ranking near the 6th and 5th percentiles respectively.

With the DXY just above an important support level, should that extreme relationship be maintained, a downside break in the DXY points to the increased risk of renewed upside across the precious metals complex.

Yen strength adds pressure to the dollar

Source: Tradingview

DXY finds itself struggling beneath the 200-day moving average, having slid back beneath it late last week, and is now perched above a support zone comprising the May 29 low of 98.75, along with the 50% retracement of the 2026 low-high at 98.68.

There were two unsuccessful probes beneath the zone back in August, but with the oscillators rolling over, indicating downside momentum is building again, the risk of a downside break appears to be growing, especially with the Japanese yen continuing to strengthen on Tuesday, seeing USD/JPY hit levels not seen since February.

Should the unwind be sustained, it would only add to downside risk for the broader DXY index, especially should the euro join the move.

Gold wedged between key levels

Source: Tradingview

Early gains in Asia have reversed in the latter parts of the session, with the push higher stalling just beneath the confluence of the August downtrend and horizontal resistance at $4,450 an ounce. Those levels are the immediate focal point overhead.

Underneath where the price now trades, $4,367 is the first level on the radar given it acted as support and resistance on multiple occasions going back to the early parts of this year. Further below, the 23.6% Fib retracement of the January to June low-high is located at $4,333 an ounce. Dips beneath that level, down to the early September low of $4,283, have made for good buying over recent months.

The message from the oscillators is one of neutrality. RSI (14) sits just beneath the 50 while MACD is running parallel to the signal line, sitting just in negative territory.

With the technical picture for gold offering little from a directional breakout perspective, dollar performance around the US inflation data on Thursday and Friday may be influential in determining which direction the price shifts next.

Silver triangle points to breakout risk

Source: Tradingview

Like gold, silver has staged a sizable reversal late in the Asian session, mirroring similar price action in Asian tech stocks that opened strongly before gains were slowly whittled away.

From a technical perspective, the price on the four-hourly continues to coil in an ascending triangle, with moves above $67 towards $67.50 resistance capping gains for the moment, while dips towards the uptrend established in early September continue to attract buying.

While ascending triangles are often associated with bullish breakouts, I would not be rushing to establish longs without a clear and sustained push above $67.50, given the iffy price beneath it recently.

The cautious view is only strengthened by the risk of forced yen carry trade unwinds, some of which have likely found their way into the precious metals space, creating the risk of disorderly downside moves across the precious metals complex. Whichever direction the price breaks from the structure may be informative as to where directional risks lie over the medium term.

Overhead, silver struggled underneath $70 in late August, and while there was one bullish breakout that eventually occurred, it stalled at $70.90, a level that acted as support and resistance on multiple occasions going back to late April.

On the downside, $65.50, the September 4 low of $64.75, and $63.30 are the focal points before $62.90 comes into view, another support and resistance level going back to earlier this year.

The message from the oscillators is neutral with RSI (14) sitting at 48 while MACD is flatlining above the signal line, holding just in positive territory. Focus should therefore be on price rather than adoption of a specific directional bias, with DXY gyrations another useful input when assessing potential setups.