Preparing for THE Bottom: Part 3 - Gold to Silver Ratio
Gold price ticks lower amid reduced Fed rate cut bets, elevated US bond yields and stronger USD. Geopolitical tensions could lend some support to the safe-haven XAU/USD and help limit losses.
From a technical perspective, the recent pullback from the record peak stalled near the $2,145-2,144 support zone, which should now act as a key pivotal point for the Gold price. A convincing break below will expose the next relevant support near the $2,128-2,127 zone before the XAU/USD extends the corrective decline further towards the $2,100 round figure.
On the flip side, the $2,175-2,176 region now seems to have emerged as an immediate strong barrier, which if cleared should allow the Gold price to challenge the record peak, around the $2,195 area touched last week. Some follow-through buying beyond the $2,200 mark will set the stage for the resumption of the uptrend witnessed since the beginning of this month.
Gold price (XAU/USD) attracts some sellers on Tuesday and stalls the previous day's modest bounce from the $2,145 zone, or over a one-week low. The stronger US inflation figures released last week fuelled speculations that the Federal Reserve (Fed) will stick to its higher-for-longer interest rates narrative and also modify its forward guidance to two 25 basis points rate cuts in 2024 instead of the three projected previously. This remains supportive of elevated US Treasury bond yields and lifts the US Dollar (USD) to a nearly two-week high, which, in turn, is seen undermining the non-yielding yellow metal.
That said, the markets are still expecting the Fed to start the rate-cutting cycle as early as the June policy meeting. This, along with persistent geopolitical tensions stemming from the protracted Russia-Ukraine war and conflicts in the Middle East, could offer some support to the safe-haven Gold price and help limit losses. Traders might also prefer to wait for more cues about the Fed's rate-cut path before placing fresh directional bets around the XAU/USD. Hence, the focus remains on the crucial FOMC decision on Wednesday, which will drive the USD demand and provide a fresh impetus to the precious metal.
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 retreated marginally from all-time highs as US T-bond yields edged higher. Near-term technical outlook shows XAU/USD is still overbought. The Fed will announce policy decisions and publish the dot plot next week.
EUR/USD stays under modest bearish pressure and declined toward 1.0850 in the early European session on Tuesday, pressured by the renewed USD strength. ZEW sentiment survey will be featured in the European economic docket ahead of housing data from the US.
The GBP/USD pair remains under some selling pressure during the early Asian session on Tuesday. The uptick in the US Dollar above 103.50 and higher US yields provide some support to the major pair. Markets turn cautious ahead of the central bank meetings, including the Federal Reserve and Bank of England interest rate decisions.
USD/JPY preserves its bullish momentum after breaking above 150.00 with the 'sell the fact' reaction to the Bank of Japan's decision to end negative interest rates. In the post-meeting press conference, Governor Ueda said they will consider options for easing broadly, including ones used in the past if needed.
Gold price ticks lower amid reduced Fed rate cut bets, elevated US bond yields and stronger USD. Geopolitical tensions could lend some support to the safe-haven XAU/USD and help limit losses.
West Texas Intermediate US Crude Oil prices edge lower during the Asian session on Tuesday and revers a part of the previous day's strong gains to the $82.45 area, or the highest level since early November. The commodity currently trades around the $82.00/barrel mark, though the downside seems limited in the wake of worries about tightening supply.
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: