Preparing for THE Bottom: Part 3 - Gold to Silver Ratio
Gold Forecast and News
Gold advances to fresh multi-week highs above $1,920
Gold extended its daily rally and climbed above $1,920 for the first time in over two weeks on Friday. Escalating geopolitical tensions ahead of the weekend weigh on T-bond yields and provide a boost to XAU/USD, which remains on track to gain nearly 5% this week.
Latest XAU/USD News
Technical Overview
The Gold price brief recaptured the key short-term descending 21-Daily Moving Average (DMA) at $1,878 but failed to yield a daily closing above the latter.
The 14-day Relative Strength Index (RSI) indicator is lying just below the midline, suggesting that the upside attempts appear temporary in Gold price.
Failure to seek a weekly close above the 21 DMA at $1,878 could reinforce bearish interest, fuelling a fresh downswing toward Wednesday’s low of $1,859.
The next relevant support is seen at the $1,850 psychological level.
On the upside, recapturing the 21 DMA barrier on a sustained basis will confirm a bullish reversal from multi-month troughs. Gold buyers will then target the $1,900 threshold. At that level, the mildly bearish 50 DMA coincides.
Further up, powerful resistance around the $1,925 level could be challenged, where the 100 and 200 DMAs hang around.
Fundamental Overview
Investors reassess renewed hawkish US Federal Reserve (Fed) expectations, spurred by the unexpectedly hot Consumer Price Index (CPI) data from the United States. The US CPI increased 0.4% last month after a 0.3% gain in August, the Labor Department said on Thursday. On an annual basis, the CPI inflation steadied at 3.7% in September, at the same pace as seen in August while beating estimates of a 3.6% rise.
The US inflation data reinforced the Fed’s “higher rates for longer” narrative, lifting the US Dollar and the US Treasury bond yields from their recent two-week troughs. Gold price, thereafter, reversed sharply from a two-week high above $1,880 and tested bids below the $1,870 mark, as the revival of hawkish Fed bets dented risk sentiment, aiding the US Dollar rebound.
Commenting on the latest inflation report, Boston Fed President Susan Collins said that it underscores uneven progress toward restoring price stability, reiterating her view that the central bank might have to raise rates again to combat inflation.
The probability of a rate hike in December from the Fed spiked up to 38%, according to the CME Fedwatch tool, compared with about a 28% chance seen before the report. Currently, markets price a 30% chance of a final Fed rate hike in December.
The reaction to the US CPI report was short-lived, as the US Dollar sellers have returned on Friday, even though risk sentiment remains sour after softer-than-expected Chinese CPI and Producer Price Index (PPI) data.
China’s Consumer Price Index (CPI) stagnated at 0% YoY in September after accelerating by 0.1% in August. The market expected an increase of 0.2%. China’s Producer Price Index (PPI) dropped 2.5% YoY in September, compared with a 3.0% decline registered previously. The market forecast was for a 2.4% decline.
Attention now turns toward the US Preliminary UoM Consumer Sentiment and Inflation Expectations data for fresh cues on the Fed’s interest rate outlook. Speeches from Fed policymakers will also play a pivotal role in influencing the US Dollar valuations alongside the end-of-the-week flows.
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: Retreating US yields, escalating tensions point to further gains Premium
Gold capitalized on safe-haven demand amid escalating geopolitical tensions and gathered bullish momentum to start the week. As US Treasury bond yields turned south on dovish Federal Reserve (Fed) expectations, XAU/USD extended its rally and snapped a two-week losing streak. Next week’s economic calendar will not offer any high-tier data releases that could impact the pair’s action in a noticeable way.
Big Picture
METALS BULLISH THEMES
METALS BEARISH THEMES
Latest XAU/USD Analysis
Editors' picks
EUR/USD stabilizes near 1.0500, looks to post weekly losses
EUR/USD extended its daily decline toward 1.0500 in the second half of the American session, pressured by the souring market mood. Despite the bullish action seen earlier in the week, the pair remains on track to register weekly losses.
GBP/USD falls below 1.2150 as USD rebounds
Following an earlier recovery attempt, GBP/USD turned south and declined below 1.2100 in the second half of the day on Friday. The negative shift seen in risk mood amid rising geopolitical tensions helps the US Dollar outperform its rivals and hurts the pair.
USD/JPY consolidates near 149.70 ahead of the US Consumer Sentiment
USD/JPY snaps the recent winning streak ahead of US data. A slew of solid US data could underpin the US Dollar. S&P Global anticipates that Japan could see upward interest rates trajectory, beginning in 2024.
Gold advances to fresh multi-week highs above $1,920
Gold extended its daily rally and climbed above $1,920 for the first time in over two weeks on Friday. Escalating geopolitical tensions ahead of the weekend weigh on T-bond yields and provide a boost to XAU/USD, which remains on track to gain nearly 5% this week.
Oil faces headwinds over demand fall despite US sanctions on Russian crude
Oil (WTI) trades broadly steady at $83 after a surprise buildup in US Oil stockpiles. The US Dollar rallied Thursday on the back of an unexpected pickup on food and energy inflation. Oil is expected to extend losses as demand is expected to weaken further.
Majors
Cryptocurrencies
Signatures
XAU/USD YEARLY FORECAST
How could XAU/USD move this year? Our experts make a XAU/USD update forecasting the possible moves of the gold-dollar pair during the whole year. Don't miss our 2023 XAU/USD forecast!
2023 FORECAST FOR XAU/USD
In the XAU/USD Price Forecast 2023, our analyst believes Gold price has the potential to register strong gains in 2023 but there are considerable downside risks. Read more details about the forecast.
Gold price could edge lower if the US economy avoids a recession and the Fed doubles down on the tight policy outlook with inflation not declining as desired.
MOST INFLUENTIAL POLITICAL EVENTS IN 2023 FOR XAU/USD
Gold price in 2023 will be driven by two major factors: The Federal Reserve’s monetary policy and the performance of the Chinese economy. Softening consumer and wage inflation in the US in the first quarter should allow markets to remain hopeful about a Fed policy pivot later in the year and leave the door open for further upside in Gold price. Combined with a strong recovery in the Chinese economy amid consistent re-opening steps, it should help the yellow metal’s demand outlook improve and support the price.
Gold/Silver Ratio
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:
About Gold
XAU/USD, GOLD
In the Forex market, gold is a form of currency. The particularity of gold is that it can only be traded against United States dollars (USD). The internationally accepted code for gold is XAU. It is known to be a “safe-haven” asset, it is expected to increase its value in times of volatility and economic uncertainty.
The XAU/USD pair tells the trader how many US Dollar (the quote currency) are needed to purchase one Gold Ounce (the base currency). United States is the country that holds the biggest resources of gold in the world.
ORGANIZATIONS THAT INFLUENCE XAU/USD THE MOST
- WGC (World Gold Council), the market development organisation for the gold industry whose aim is to stimulate and sustain demand for that commodity.
- LBMA, London Bullion Market Association, whose members conduct trading in this wholesale over-the-counter market for the trading of gold and silver. It is loosely overseen by the Bank of England. Most of the members are major international banks or bullion dealers and refiners.
- COMEX (Commodity Exchange Inc.), the primary market for trading metals. The COMEX merged with the New York Mercantile exchange (NYMEX) in 1994 and became the division responsible for metals trading.
- Zurich Gold Pool founded in 1968 by the largest banks in Switzerland after the collapse of the London Gold Pool.
- CGSE, the Chinese Gold & Silver Exchange Society (see above the importance of China in terms of gold reserve).
PEOPLE THAT INFLUENCE XAU/USD THE MOST
- David Harquail, the World Gold Council’s Chairman
- Steven Mnuchin, US Treasury Secretary
- Xi Jinping, President of the People's Republic of China and General Secretary of the Communist Party of China
ECONOMIC DATA THAT INFLUENCE XAU/USD THE MOST
The main indicators that traders should watch to understand where gold is standing are:
- Demand vs Supply for the commodity
- Struggling markets or context of currency devaluation: gold is known to be a haven for investors in times of economic uncertainty or when any country sees its currency devaluing
- Practical applications: technology invents, jewellery use, etc
ASSETS THAT INFLUENCE XAU/USD THE MOST
- Currencies: USD and EUR. Other important group of influent pairs includes: EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, NZD/USD and USD/CAD.
- Commodities: Silver, the other most important precious metal commodity together with Gold.
- Bonds: Bund (the German word for "bond", a debt security issued by Germany's federal government) and T-Note (Treasury Note, a marketable U.S. government debt security)
- Indices: Hui (AMEX Gold BUGS), XAU (Philadelphia Gold and Silver Sector Index) and GDM (NYSE Arca Gold Miners Index) The most important stock exchanges are the New York Mercantile Exchange (COMEX), the Chicago Board of Trade, the Euronext/LIFFE, the London Bullion Market, the Tokyo Commodity Exchange, the Bolsa der Mercadorias e Futuros and the Korea Futures Exchange.
