Preparing for THE Bottom: Part 3 - Gold to Silver Ratio
Gold price is holding the rebound below $2,330 in Asian trading on Thursday, as the US Dollar recovers in sync with the USD/JPY pair and the US Treasury bond yields, in the aftermath of the Fed decision and the likely Japanese FX intervention.
The daily chart for XAU/USD shows it has trimmed half of Tuesday's losses but also that the pair keeps trading below $2,326.50, the 23.6% Fibonacci retracement of the $1,996.06/$2,431.43 rally. Also, the pair met buyers before the next Fibonacci level, the 38.2% retracement at $2,260.30. The technical picture skews the risk to the downside, as the 20 Simple Moving Average (SMA) lost its bullish strength and stands flat at around $2,335. At the same time, technical indicators remain within negative levels, although with uneven directional strength, falling short of suggesting a clear direction.
In the near term, and according to the 4-hour chart, the latest advance seems corrective. XAU/USD trades below the 20 and 100 SMAs, with the shorter gaining bearish traction. Meanwhile, technical indicators corrected oversold readings but turned directionless below their midlines, suggesting buying interest is still limited.
Support levels: 2,291.20 2,276.50 2,260.30
Resistance levels: 2,310.50 2,326.50 2,341.05
Gold bottomed at $2,281.56 early on Wednesday, as demand for the US Dollar extended at the beginning of the day amid a dismal mood. Speculative interest turned risk-averse on Tuesday following the release of the higher-than-anticipated United States (US) Q1 Employment Cost Index, which fueled concerns about persistent inflationary pressure. As a result, Wall Street turned red, while government bond yields rallied, with the 2-year Treasury note hitting its highest since last November.
Conditions worsened on Wednesday, as most major markets closed due to the Labor Day Holiday. Canada and the US, however, work normally as they celebrate such a holiday on a different date. American stock markets remain under pressure, reflecting continued concerns. At the same time, demand for the Greenback eased following dismal US data and ahead of the Federal Reserve (Fed) monetary policy announcement, sending investors back into Gold. XAU/USD recovered the $2,300 threshold and trades near a daily high of $2,310.35.
US data released earlier in the day showed the labor market in the country remains tight. On the one hand, the ADP survey indicated that the private sector added 192K new positions in April. On the other hand, the number of job openings remained little changed at 8.5 million on the last business day of March, according to the JOLTS Job Openings report. Furthermore, growth-related data was tepid, to say the least. Manufacturing output "contracted in April after one month of expansion following 16 consecutive months of contraction, say the nation's supply executives in the latest Manufacturing ISM report." Finally, S&P Global confirmed the Manufacturing PMI for the same month at 49.4, well below the 50 expected and the previous 49.8.
The Fed is widely anticipated to leave the policy rate unchanged at 5.25%-5.5% for the sixth consecutive meeting, while market players are also pricing in a hawkish message, that is, higher for longer rates. The focus will be on Chairman Jerome Powell's press conference and whatever clue he gives on future moves.
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.
EUR/USD cycled familiar territory on Wednesday after the US Federal Reserve held rates as many investors had expected. However, market participants were hoping for further signs of impending rate cuts from the US central bank.
The resumption of the upward pressure sends GBP/USD back above 1.2500 the figure in response to increasing selling pressure hurting the Greenback.
USD/JPY is staging a solid comeback above 156.00, having lost nearly 450 pips in some minutes after the Japanese Yen rallied hard on another suspected Japan FX market intervention in the late American session on Wednesday.
Gold price is holding the rebound below $2,330 in Asian trading on Thursday, as the US Dollar recovers in sync with the USD/JPY pair and the US Treasury bond yields, in the aftermath of the Fed decision and the likely Japanese FX intervention.
Western Texas Intermediate (WTI), the US crude oil benchmark, is trading around $80.80 on Wednesday. The black gold edges lower on rising crude inventories in the United States and easing geopolitical tensions in the Middle East.
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: