Preparing for THE Bottom: Part 3 - Gold to Silver Ratio
Gold stays on the back foot below $2,300 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.6% after weak US data but the improving risk mood doesn't allow XAU/USD to gain traction.
From a technical perspective, the daily chart shows sellers rejected advances for a second consecutive day around $2,326.50, the 23.6% Fibonacci retracement of the $1,996.06/$2,431.43 rally. The same chart shows the 20 Simple Moving Average (SMA) remains flat just above the mentioned level, while the longer ones maintain their upward slopes well below the current price. Finally, technical indicators held within negative levels with uneven strength, skewing the risk to the downside.
The 4-hour chart shows the pair is currently developing below bearish 20 and 100 SMAs, although a modestly bullish 200 SMA. Technical indicators recovered from their early lows but remain below their midlines and are losing their upward strength, suggesting buyers are not interested at the time being.
Support levels: 2,291.20 2,276.50 2,260.30
Resistance levels: 2,310.50 2,326.50 2,341.05
Financial markets struggle for direction on Thursday, with XAU/USD hovering around the $2,300 mark. The US Dollar traded throughout the day on sentiment, advancing with optimism while falling when things soured. In a broader view, however, little has changed across the board throughout the week, as the Federal Reserve (Fed) failed to deliver a clear message. The central bank announced on Wednesday that it would slow the pace of decline in its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion starting in June. Interest rates have been left unchanged, as expected.
The Fed was hawkish but not as hawkish as feared. Indeed, Chairman Jerome Powell dropped some dovish comments in the middle of his press conference. Inflation is still the main issue, but not the only one. Price pressures intensified in the first quarter of the year, while other macroeconomic data indicated economic progress slowed. Still, Powell repeated that decisions will be made meeting by meeting and clarified that it is unlikely the next policy move will be a hike. He added that cutting rates is an option if inflation resumes its fall but also if there is weakness in the labor market, uplifting the relevance of employment-related figures ahead of the next Fed decision.
Data released these days showed the labor market remains tight. The ADP survey indicated that the private sector added 192K new positions in April while 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, the US reported Unit Labor Costs in the first quarter of the year rose 4.7%, implying an upward risk to inflaiton, while Nonfarm Productivity in the same quarter advanced a measly 0.3%.
Another indicator of labor sector performance will be the April Nonfarm Payrolls report, which will be out on Friday. The US is expected to have added 243K, while the Unemployment Rate is foreseen steady at 3.8%. The report includes an update on wages, while separately, the US will release the April ISM Services PMI, an indicator of economic health.
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 fell more than 2% for the second consecutive week, erased a small portion of its losses but finally came under renewed bearish pressure. The near-term technical outlook points to a loss of bullish momentum as the market focus shifts to Fedspeak.
EUR/USD manages to hold in positive territory above 1.0750 despite retreating from the fresh multi-week high it set above 1.0800 earlier in the day. The US Dollar struggles to find demand following the weaker-than-expected NFP data.
GBP/USD struggles to preserve its bullish momentum and trades below 1.2550 in the American session. Earlier in the day, the disappointing April jobs report from the US triggered a USD selloff and allowed the pair to reach multi-week highs above 1.2600.
The Japanese Yen is set to lock in a staggering performance for this week against the US Dollar. The Yen has appreciated over 3% following Japan’s intervention to propel the currency and the Fed’s less-hawkish rhetoric. The US Dollar Index slips below 105.00 with softer NFP print.
Gold stays on the back foot below $2,300 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.6% after weak US data but the improving risk mood doesn't allow XAU/USD to gain traction.
Western Texas Intermediate, the US crude oil benchmark, is trading around $79.00 on Friday. The black gold rebounds modestly from a seven-week low. However, the upside might be limited due to rising crude inventories in the United States and fading hopes for rate cuts from the US Federal Reserve.
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: