Preparing for THE Bottom: Part 3 - Gold to Silver Ratio
Gold trades in a narrow channel above $2,600 on Tuesday, albeit lacking strong follow-through buying. Geopolitical tensions and trade war fears lend support to the safe-haven XAU/USD, while the Fed’s hawkish shift acts as a tailwind for the USD and caps the precious metal.
From a technical perspective, the recent recovery from a one-month low, along an ascending channel, constitutes the formation of a bearish flag pattern on hourly charts. Moreover, oscillators on the daily chart remain in negative territory, suggesting that the path of least resistance for the Gold price is downward. That said, it will still be prudent to wait for a convincing break below the channel support, currently pegged around the $2,605-$2,600 area, before positioning for any further depreciating move.
The subsequent downfall could drag the Gold price back towards the monthly trough, around the $2,583 region touched last week. Some follow-through selling will be seen as a fresh trigger for bears and set the stage for a slide towards the November monthly swing low, around the $2,537-$2,536 area en route to the $2,500 psychological mark.
On the flip side, the $2,633-$2,634 zone, or a multi-day top touched on Monday, which nears the top boundary of the ascending channel, might continue to act as an immediate strong barrier. A sustained strength beyond might prompt some short-covering and lift the Gold price to the $2,654-$2,655 region. The latter should act as a key pivotal point, which if cleared decisively will negate the near-term negative bias and pave the way for additional gains towards reclaiming the $2,700 round figure.
Gold price (XAU/USD) sticks to its positive bias through the early European session on Tuesday, though it lacks follow-through and remains below a multi-day peak touched the previous day. The Federal Reserve's (Fed) hawkish signal last week, that it would slow the pace of interest rate cuts in 2025, assists the US Dollar (USD) to stand firm near a two-year high and acts as a headwind for the non-yielding yellow metal. Adding to this, a positive risk tone contributes to capping gains for the precious metal.
That said, geopolitical risks stemming from the protracted Russia-Ukraine war and tensions in the Middle East, along with trade war fears, continue to offer some support to the safe-haven Gold price. Apart from this, a modest pullback in the US Treasury bond yields remains supportive of a mildly bid tone amid thin trading volumes on Christmas Eve. Hence, it will be prudent to wait for some follow-through buying before positioning for any further recovery from a one-month low touched last week.
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 benefited from escalating geopolitical tensions and the global shift toward a looser monetary policy environment throughout 2024, setting a new all-time high at $2,790 and rising around 25% for the year.
EUR/USD trades with mild losses near 1.0400 on Tuesday. The expectation that the US Federal Reserve will deliver fewer rate cuts in 2025 provides some support for the US Dollar. Trading volumes are likely to remain low heading into the Christmas break.
GBP/USD consolidates in a range at around 1.2550 on Tuesday after closing in negative territory on Monday. The US Dollar preserves its strength and makes it difficult for the pair to gain traction as trading conditions thin out on Christmas Eve.
USD/JPY has come under renewed selling pressure, easing toward 157.00 after Japanese Finance Minister Kato's verbal intervention. The pair erased early gains, induced by the October BoJ meeting Minutes. However, the downside could be limited as the US Dollar hold the previous rebound.
Gold trades in a narrow channel above $2,600 on Tuesday, albeit lacking strong follow-through buying. Geopolitical tensions and trade war fears lend support to the safe-haven XAU/USD, while the Fed’s hawkish shift acts as a tailwind for the USD and caps the precious metal.
Oil prices are hanging on to marginal gains with traders set to head into the Christmas holidays. Markets are ignoringe some headlines about further stimulus in China, one of the top global consumers. The US Dollar Index trades just below its current two-year high as volatility winds down.
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: