Preparing for THE Bottom: Part 3 - Gold to Silver Ratio
Gold price eases but upside remains favored amid escalating US-China tensions. The expected visit of US’ Pelosi to Taipei rattles markets amid China warnings. Gold bulls remain on track to test the critical resistance area at $1,786.
The Technical Confluence Detector shows that the gold price is looking to find fresh upside traction, as it flirts with the $1,771 support area. That level is the convergence of the Fibonacci 23.6% one-day and SMA5 four-hour.
Defending the latter could fuel a bounce back towards the previous day’s high of $1,775. The next significant resistance is aligned at the pivot point one-day R1 at $1,779.
Bulls need to crack the confluence of the pivot point one-week R1 and pivot point one-day R2 at $1,786 to unleash a sustained move towards the $1,800 mark.
On the flip side, if sellers manage to find a strong foothold below the abovementioned support, then bears will challenge a strong cushion around $1,768, where the previous week’s high, SMA10 four-hour and Fibonacci 38.2% one-day coincide.
The Fibonacci 61.8% one-day at $1,765 will come to buyers’ rescue, below which the Fibonacci 61.8% one-month at $1,763 will be probed.
The next downside targets are placed at the previous day’s low of $1,758 and the all-important Fibonacci 23.6% one-week at $1,755.
Gold price seems positioned for a renewed upswing, with all eyes set on the $1,786 barrier en route to the $1,800 mark. The buying interest in the yellow metal remains unabated, despite the latest rebound in the US dollar, as investors prefer holding gold as a store of value amid escalating US-China tensions over Taiwan. US House of Representatives Speaker Nancy Pelosi is due to arrive in Taiwan at 1420 GMT. Both China and Taiwan have strengthened their military resources, as she is visiting the self-ruled island claimed by Beijing. Intensifying geopolitical tensions have ramped up risk-off flows into traditional safe havens such as the bullion and the US government bonds, weighing negatively on the Treasury yields. The ongoing slump in the yields is likely to remain a drag on the dollar. Looking forward, the absence of top-tier US economic data will keep the market’s attention on the Taiwan tensions.
Also read: Gold Price Forecast: XAU/USD outshines amid panic, targets $1,794
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 closed the second straight week in positive territory. Falling US T-bond yields helped XAUUSD gather bullish momentum. Additional gains are likely in case buyers clear $1,780 resistance.
EUR/USD is heading south towards 1.0200 in early Europe, as bulls failed to keep reins near the monthly high. Mounting US-China tensions over Taiwan and recession fears weigh on risk sentiment and help the dollar find demand as a safe haven.
GBP/USD is trading deep in red near 1.2200, as investors turn away from higher-yielding assets such as the GBP. Despite falling US Treasury bond yields, the dollar manages to gather strength amid risk aversion. US Pelosi's visit to Taiwan is the main event risk this Tuesday.
USD/JPY is rebounding towards 131.00, having found support near 130.40 after the Japanese Finance Minister expressed concerns about the rapid moves in the yen. Risk-aversion combined with the sell-off in the US dollar and yields keep the downside intact in the pair.
Gold price eases but upside remains favored amid escalating US-China tensions. The expected visit of US’ Pelosi to Taipei rattles markets amid China warnings. Gold bulls remain on track to test the critical resistance area at $1,786.
WTI crude oil prices remain depressed after breaking the one-month-old symmetrical triangle to the south. That said, the black gold holds lower ground near $93.00, the lowest levels in two weeks, during Tuesday’s Asian session. Given the bearish MACD signals joining the triangle’s breakdown, the commodity prices are likely to decline further.
In the XAU/USD Price Forecast 2022, our analyst expects gold outlook to remain bullish in 2022 as central banks keep committed to supporting recovery. Read more details about the forecast.
Overall, Fed’s policy outlook in the face of inflation and COVID will be the main market driver of 2022.
Gold could be expected to continue to stay inversely correlated with the US Treasury bond yields in 2022. The Fed’s policy outlook will be the key factor determining yields’ direction. If the Fed stays in wait-and-see mode in the first half of 2022 and hikes the policy rate by 25 basis points as expected in June, the timing of the second rate hike will be critical for markets. Markets could start pricing one more 25 basis points hike before the end of 2022 and fuel a rally in yields. That would provide a boost to the dollar and weigh on XAU/USD.
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: