Preparing for THE Bottom: Part 3 - Gold to Silver Ratio
Gold trades modestly higher on the day above $2,360 in the American session. The data from the US showed that annual inflation edged lower to 3.4% in April as expected. The benchmark 10-year US Treasury bond yield stays in the red below 4.4%, allowing XAU/USD to keep its footing.
The daily chart for the XAU/USD pair shows bulls are in control, although a firmer rally remains unclear. Technical indicators advance within positive levels with uneven strength, yet at the same time, they stand at fresh multi-week highs, somehow supporting a bullish continuation. Furthermore, XAU/USD finally ran above a flat 20 Simple Moving Average, which provided near-term support at around $2,335 earlier in the week. Finally, the 100 and 200 SMAs accelerated their advances far below the current level, reflecting renewed buying interest.
The near-term picture is bullish. Technical indicators in the 4-hour chart head firmly south, with the Relative Strength Index (RSI) indicator entering overbought territory without signs of giving up. Furthermore, the pair bounced sharply from a bullish 20 SMA, which gained upward traction above the also bullish 100 and 200 SMAs. XAU/USD could reach the $2,400 mark in the upcoming sessions despite widespread signs of risk appetite.
Support levels: 2,378.10 2,361.35 2,345.20
Resistance levels: 2,392.50, 2,403.10 2,417.60
Gold price reached a fresh three-week high above $2,380.00 on Wednesday and maintains the bullish stance in the mid-American session. XAU/USD rallied following the release of the United States (US) Consumer Price Index (CPI) as inflation remained stubbornly high in April, according to the US Bureau of Labor Statistics (BLS). The CPI rose 3.4% YoY in April from 3.5% in March, meeting the market’s expectations, while the core annual reading printed at 3.6%, easing from the previous 3.8% but also in line with the market forecast. Finally, the monthly CPI rose 0.3%, slightly below the expected 0.4%.
Overall, the figures were not as terrible as feared, but enough to reaffirm the Federal Reserve's (Fed) hawkish stance. The central bank has maintained the status quo since hiking rates to a range of 5.25% - 5.50% in July 2023 for much longer than initially anticipated. In fact, the Fed’s Summary of Economic Projections (SEP) suggested policymakers were aiming for three potential rate hikes when they met in December. March is gone, and at the time being, investors hope US policymakers will deliver at least one rate cut in November.
What happened? Well, inflation remained above the central bank’s goal, while the labor market remained tight. Fed Chairman Jerome Powell lifted the tone and ended up delivering clearly hawkish messages. In such a scenario, speculative interest is eager to see softening inflation figures, precisely the opposite of what was seen throughout the first quarter of the year. As a result, investors drop the US Dollar.
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:
Spot Gold price (XAU/USD) heads into the weekly close posting solid gains and changing hands at around $2,360 a troy ounce. XAU/USD struggled for direction, spending most of the week hovering between $2,300 and $2,330.
The strong CPI-driven pullback in the Greenback allowed EUR/USD to maintain its multi-session rebound well in place, approaching the key 1.0900 region on Wednesday.
GBP/USD extended its march north and climbed to fresh five-week tops in the boundaries of 1.2700 the figure, always on the back of the increasing selling pressure hurting the US Dollar post-US CPI.
The USD/JPY pair trades in positive territory for the fourth consecutive day near 156.55 on Wednesday during the Asian session. The uptick of the pair is bolstered by the speculation that the Federal Reserve might maintain rates higher for longer amid the elevated inflation.
Gold trades modestly higher on the day above $2,360 in the American session. The data from the US showed that annual inflation edged lower to 3.4% in April as expected. The benchmark 10-year US Treasury bond yield stays in the red below 4.4%, allowing XAU/USD to keep its footing.
Oil breaks below $78.00 after both OPEC and IEA released their monthly reports. While OPEC stuck to previous expectations, sluggish demand is forecasted in the IEA release. The US Dollar Index eases ahead of the US CPI print.
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: