TNX and Precious Metals 8/18/2020

This is the TNX at the daily view.

There are way too many retail traders who are trading precious metals blindly. The first rule in trading? Protect your profits (capital preservation). Generally, you cannot protect your capital if you're trading something that you don't understand.

The ten-year note is important since it has an inverse relationship with precious metals and a correlating relationship with the financials sector (XLF). The TNX is one of the centerpieces of the financial sector. If the TNX does well, then financials do well. However, when the TNX tanks, then precious metals will rally about 2-4 weeks later... usually. Sometimes the reaction is quicker if out of panic.

On June 23rd, TNX tanked and moved below the middle of the channel (white line). On July 13th, both gold and silver began their super rally.

On August 6th, the TNX began its comeback rally and reclaimed its former uptrend support. On August 11th, gold and silver began their corrective selloff.

To predict gold and silver, it's not only how many buyers/sellers there are. Traders need to consider both the dollar strength and the yields - especially the TNX.

Now, the dollar strength and the yields are locked in a battle to control gold and silver's prices. According to Bloomberg, the dollar is now overcrowded in shorts. Overcrowded means vulnerable for a fierce reversal. If the TNX holds its support or at least remain flat, that may buy enough time for the DXY to bounce hard. If the DXY bounces hard, then precious metals may pullback further for a much better entry price.