Preparing for THE Bottom: Part 3 - Gold to Silver Ratio
Gold price rallied close to 1% on Monday, late in the North American session, bolstered by an improvement in risk appetite due to increased bets that the US Federal Reserve might begin to ease policy sooner than foreseen. The XAU/USD trades at around $2,320 after bouncing off daily lows of $2,291.
From a technical point of view, XAU/USD has made little progress, although the odds for a downward acceleration diluted. The daily chart shows the pair trades around a critical Fibonacci level, the 23.6% retracement of the April/May rally at $2,326.50. The daily chart shows the 20 Simple Moving Average (SMA) remains directionless at around $2,340.15, providing near-term resistance. The longer moving averages, in the meantime, maintain their bullish slopes far below the current level. Finally, technical indicators have turned marginally higher, but the Momentum indicator develops within negative levels, while the Relative Strength Index (RSI) indicator stands at around 54, not enough to confirm another leg higher.
In the near term, and according to the 4-hour chart, XAU/USD is losing its early strength. Technical indicators remain within positive levels but are turning flat. At the same time, the pair continues to develop within moving averages, with a bearish 100 SMA providing dynamic resistance in the $2,340 region. On a positive note, the 20 SMA keeps grinding higher below the current level, skewing the risk to the upside.
Support levels: 2,310.40 2,291.20, 2,276.50
Resistance levels: 2,340.15 2,356.90 2,372.85
Spot Gold turned positive at the beginning of the week, with XAU/USD reaching an intraday high of $2,331.88. The US Dollar weakened throughout the first half of the day, although trading conditions were thin amid holidays in Japan and the United Kingdom. The market mood remained upbeat in Asia and Europe, undermining demand for the American currency. After Wall SStreet'sopening, however, the mood temporarily soured, leading to some modest USD gains.
XAU/USD picked up following mixed comments from Federal Reserve (Fed) officials, as Richmond Fed President Thomas Barkin, voting member of the Federal Open Market Committee (FOMC), said inflation this year has been disappointing, adding policymakers' job is not yet done. Furthermore, he said that given the strong labor market, the Fed has time to gain confidence that inflation will fall. Finally, he said he does not see the economy overheating but added the central bank knows how to respond if it does.
Then, it was the turn of John C. Williams, President of the Federal Reserve Bank of New York. His words were mostly dovish. He said that indeed, the Fed eventually will cut rates, adding that the central bank is looking at the totality of economic data. Finally, he noted that job growth is moderating, while the Fed balance sheet's drawdown has not affected markets.
The macroeconomic calendar will remain scarce in the United States (US) this week, although multiple Fed speakers could set the tone after last week's moderately hawkish monetary policy announcement.
SPECIAL WEEKLY FORECAST
Interested in weekly XAU/USD forecasts? Our experts make weekly updates forecasting the next possible moves of the gold-dollar pair. Here you can find the most recent forecast by our market experts:
Gold (XAU/USD) price fell more than 2% for the second consecutive week, erased a small portion of its losses but finally came under renewed bearish pressure. The near-term technical outlook points to a loss of bullish momentum as the market focus shifts to Fedspeak.
EUR/USD churned around 1.0770 to kick off the new trading week, with the pair rising after better-than-expected Purchasing Managers Index figures early Monday before settling into familiar chart territory above 1.0750 ahead of Tuesday’s pan-European Retail Sales figures.
The GBP/USD pair trades in positive territory for the fifth consecutive day near 1.2560 during the Asian session on Tuesday. The weaker US Dollar provides some support to the major pair. The Bank of England interest rate decision on Thursday will be in the spotlight, with no change in rate expected.
The USD/JPY pair trades on a stronger note around 154.10 on Tuesday during the Asian trading hours. The recovery of the pair is supported by the modest rebound of US Dollar to 105.10 after bouncing off three-week lows.
Gold price rallied close to 1% on Monday, late in the North American session, bolstered by an improvement in risk appetite due to increased bets that the US Federal Reserve might begin to ease policy sooner than foreseen. The XAU/USD trades at around $2,320 after bouncing off daily lows of $2,291.
West Texas Intermediate (WTI) US Crude Oil futures fell on Monday after headlines of a possible ceasefire in the ongoing conflict between Israel and Palestinian Hamas. Crude Oil markets will also be keeping an eye out for weekly production updates from the US as output threatens to outpace demand.
Majors
Cryptocurrencies
Signatures
In the XAU/USD Price Forecast 2024, our analyst, Eren Sengezer, notes that Gold carries its bullish potential into early 2024 on prospects of a looser Fed policy, lower US bond yields and a weaker USD. A downturn in the global economy, however, could weigh on demand and limit the precious metal’s gains. A lack of progress in the Fed’s efforts to lower inflation, on the other hand, could cause XAU/USD to turn south. Read more details about the forecast.
The Russia-Ukraine conflict in 2022 and the Israel-Hamas dispute in 2023 underscored Gold's appeal as a safe-haven asset in uncertain times. Further escalation in the Middle East or a resurgence of the Russia-Ukraine conflict may push Gold prices higher.
A potential re-election of former President Donald Trump could involve a 10% tariff on foreign goods and a four-year plan to reduce essential Chinese imports. This could complicate the Federal Reserve's task of lowering inflation to the 2% target and strain relations with China, negatively affecting Gold's demand outlook.
This ratio normally goes well during risk aversion, while it falls off during times of risk-on. If this ratio is about to turn, or at key levels where it could turn, the
trader looks to the Equity indices if the risk has indeed been on and if it is about to turn as well.
When the ratio is rising, it means gold is outperforming silver, and when the line is falling, the first term is doing worse, i.e., silver is doing better. In other words, when the ratio is high, the general consensus is that silver is favored. Conversely, a low ratio tends to favor gold and may be a signal it’s a good time to buy the yellow metal. Despite the gold-to-silver ratio fluctuating so wildly, another way of using it is to switch holdings between silver and gold when the ratio swings to historically determined "extremes."
Read more about gold versus silver:
The main indicators that traders should watch to understand where gold is standing are: