Williams, who joined the club on loan from Kendal Town last summer, played a key role in helping Chester secure a place in the Conference Premier.
However, Young has revealed that the winger will join Scottish Premier League outfit Inverness Caledonian Thistle.
"We're gutted we've lost out on the deal. I'm not a defeatist but when a player like Danny gets away - who we've scouted and chased and chased and chased - it's a massive blow as he fits everything we're trying to do," Young told Sky Sports News.
"It's a great move for the lad and on the flipside it's great credit to what we've done for him here at Chester - he's going from Kendal to play in the Scottish Premier League. It's not all done and dusted yet but it's nearly there.
"We wish him well and he's another of those little nuggets we've found over the three years."
A number of Football League clubs were also reportedly monitoring his development.