Dollar Index Pullback From Resistance Hands Gold and Silver a Lifeline

The U.S. dollar index has turned lower from an eight-month resistance line, and the link between the dollar index and gold is now doing much of the work behind the precious metals rebound. A softer dollar is giving gold and silver room to hold their bullish setup from the July lows, even as both metals trade near critical support zones. U.S. Treasury yields are pulling back at the same time, adding a second macro tailwind. The result is a precious metals market leaning on currency and rate weakness rather than on fresh demand of its own.

Razan Hilal, StoneX Media Market Analyst and a Chartered Market Technician, has spent seven years analyzing forex, stocks, commodities and equity indices, and has produced more than 100 market analysis reports. Based in Dubai, she works across technical and intermarket analysis, tracking how currency and bond market moves feed through to gold and silver charts.

Key Themes

• The U.S. dollar index is pulling back from an eight-month resistance line.
• Bearish RSI divergence on the dollar index adds weight to the pullback in the greenback.
• Lower U.S. Treasury yields and a softer dollar together support the gold and silver rebound.

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Dollar Index Pullback Breaks an Eight-Month Run of Higher Highs

The U.S. dollar index has pulled back from an eight-month resistance line that connected a series of consecutive higher highs on the daily chart. Hilal points to the turn directly, "we can see the pullback for the DXY ... from an eight-month resistance connecting consecutive higher highs". For gold and silver, that break in the dollar's climb removes one of the main headwinds that capped precious metals during the greenback's advance. A dollar index that stops making higher highs gives the July rebound in both metals a firmer macro footing.

Dollar Index RSI Divergence Strengthens the Case for Precious Metals

Bearish divergence on the U.S. dollar index Relative Strength Index, with the indicator retreating from overbought conditions, adds weight to the pullback in the greenback. Momentum fading while price tested resistance is a classic sign that the dollar's rally was losing force. In turn, gold and silver gain a supportive backdrop, since weaker dollar momentum tends to ease pressure on dollar-priced metals. Looking at the upside scenario for gold, Hilal ties it directly to the currency and rate picture, noting that "that scenario would likely be aligned as well with a broader pullback in U.S. Treasury yields and some of the risk on sentiment across the markets, or a possible pullback or weakness across the U.S. dollar index".

Treasury Yields Pullback Adds a Second Tailwind for Gold and Silver

"We have the U.S. ten year Treasury yield from a three months time frame where we can see an emerging pullback risk on the horizon," Hilal says, pointing to a long-term chart that tracks bearish divergence from multi-decade overbought levels. Lower U.S. Treasury yields reduce the opportunity cost of holding non-yielding assets such as gold and silver, which pairs naturally with a weaker dollar index. According to Hilal, the divergence is opening the risk of "a potential longer term pullback risk or drawdown risk across Treasury yields supporting the broader bullish setup across gold and silver". As a result, the dollar index and Treasury yields now move as one combined driver, and both point the same way for the metals rebound.

 

--- Written by Frédéric Guétin, StoneX Media Producer

--- Expert: Razan Hilal, StoneX Media Market Analyst