Preparing for THE Bottom: Part 3 - Gold to Silver Ratio
Gold price trades on a softer note below $2,350 early Monday. The recent US economic data showed that US inflationary pressures stayed firm, supporting the US Dollar at the expense of Gold price. The upbeat mood also adds to the weight on the bright metal.
As observed on the daily chart, Gold price continues its struggle around the key 21-day Simple Moving Average (SMA), now at $2,336.
If Gold sellers manage to find a strong foothold below the latter on a daily closing basis, a fresh downtrend could be initiated toward the 50-day SMA at $2,212. Gold sellers, however, will also need to crack the rising trendline support at $2,325 before eyeing the 50-day SMA.
Ahead of that, the previous week’s low of $2,291 and the psychological $2,250 level could lend support to buyers.
The 14-day Relative Strength Index (RSI) has turned south, justifying the latest leg down in Gold price. However, the indicator still hold well above the midline, near 56.00, implying that every dip in Gold price could be a good buying opportunity.
On the upside, the previous week’s high will be the initial contention point on recapturing the 21-day SMA support-turned-resistance. Further up, the $2,370 round level will be challenged en route the April 22 high of $2,392.
The risk rally in Asia extends early Monday, following a strong close on Wall Street last Friday and a robust Alphabet earnings report, fuelling a fresh decline in the safe-haven Gold price even though the US Treasury bond yields nurse recent losses.
The leg down in the Gold price can be also attributed to a modest uptick in the US Dollar, following Friday’s muted performance. The Greenback draws support from the relentless USD/JPY rally after the Japanese Yen crumbled to a level unseen since 1986 to below 160.00 against the buck on Japan’s political concerns.
Despite the upbeat risk tone, the US Dollar stays afloat, weighing negatively on the USD-denominated Gold price.
On Friday, Gold price rose to a four-day high of $2,353 but failed to resist above the $2,350 threshold, as markets took account of hot US Personal Consumption Expenditures (PCE) Price Index inflation data, betting on delayed policy pivot by the US Federal Reserve (Fed) this year.
The annual Core PCE Price Index, the Fed’s preferred inflation gauge, rose 2.8%, at the same pace as seen in February but came in hotter than the expected 2.6% increase. Markets are pricing in the first Fed rate cut in September, with just over 30 basis points worth of easing expected this year, down from 40 bps projected a week ago.
Risk flows dominated the American trading on Friday, which also curbed the upside in the bright metal.
Looking ahead, Gold traders will remain cautious and refrain from placing big bets on Gold price ahead of the US employment and the Fed interest rate decision due on Wednesday. Although the Fed’s inaction is widely priced in, Chair Jerome Powell’s comments during the press conference will hold the key for gauging the timing of rate cuts.
In the meantime, risk trends and the USD dynamics will continue to influence the Gold price action.
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 started the week under heavy bearish pressure and registered its largest one-day loss of the year on Monday. The pair managed to stage a rebound in the second half of the week but closed in negative territory. The US Federal Reserve’s (Fed) monetary policy announcements and April labor market data from the US could drive XAU/USD’s action next week.
EUR/USD trades on a stronger note around 1.0710 during the early Asian trading hours on Monday. The weaker US Dollar below the 106.00 mark provides some support to the major pair.
The GBP/USD pair holds positive ground near 1.2520 on Monday during the early Asian session. The uptick of the major pair is supported by the softer US Dollar below the 106.00 psychological mark. Investors will closely monitor the Federal Open Market Committee interest rate decision and Press Conference on Wednesday.
Having briefly recaptured 160.00, USD/JPY came under intense selling and sank below 157.00 on what seems like an FX intervention underway. The Yen tumbled in early trades amid news that Japan's PM lost 3 key seats in the by-election. Holiday-thinned trading exaggerates the USD/JPY price action.
Gold price trades on a softer note below $2,350 early Monday. The recent US economic data showed that US inflationary pressures stayed firm, supporting the US Dollar at the expense of Gold price. The upbeat mood also adds to the weight on the bright metal.
West Texas Intermediate (WTI) US crude Oil prices kick off the new week on a weaker note and slide below the $83.00/barrel mark during the Asian session.
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: