Gold price to sink, silver to rise, as the gold/silver ratio double tops

September 09, 2024 11:08 PM PDT | By Invezz
 Gold price to sink, silver to rise, as the gold/silver ratio double tops
Image source: Invezz

Gold and silver prices have pulled back in the past few days as investors focus on next week’s Federal Reserve interest rate decision. Silver retreated to a low of $28, down by over 13% from its highest point this year, meaning that it is in a correction.

Gold has also retreated to the important support level at $2,500, a few points below the year-to-date high of $1,530. It has jumped by more than 55% from its lowest point in 2023 while silver has risen by 61% in the same period. 

Gold and silver demand easing

The two metals have softened recently as signs show that their higher prices are hurting global demand.

A good example of this is in China, where the central bank has paused buying gold for four months in a row. Data released last week showed that the central bank held 72.8 million ounces of gold, currently valued at over $182 billion, making it one of the biggest holders of the metal.

The US holds over 261 million troy ounces of gold valued at over $500 billion. Most of this gold is stored in Fort Knox, Kentucky. Other large holders of gold are Germany, Italy, and France. 

China has become one of the most aggressive buyers of gold in the past few years as it sought to diversify its reserves from the United States. For example, the country has been slashing its holdings of US Treasuries. 

Its holdings have moved from over $1.3 trillion a few years ago to about $780 billion. It has been overtaken by Japan, which now holds over $1.1 trillion of gold holdings.

China and other big gold holders have benefited as its price has soared in the past few decades. Gold price has surged by almost 1,000% from its lowest level in 1999 and by over 6,200% since the US abandoned the gold standard. 

Central bank demand for gold has been strong, especially after Russia invaded Ukraine, pushing the US to freeze the country’s dollar holdings.

Federal Reserve interest rates

Silver and gold prices have also eased a bit as investors focus on the actions of most central banks, which have started cutting interest rates. In Europe, the European Central Bank (ECB) has slashed rates once and is expected to do the same this week.

Similarly, the Bank of England (BoE) has already slashed once and is expected to repeat later this month. 

The two have eased because the Fed is expected to slash rates by 0.25% instead of the previously expected 0.50%. Data released last week showed that the unemployment rate improved to 4.2% in August as the economy added over 114k jobs. Wage growth resumed growing during the month.

The next important catalyst for gold and silver will be Wednesday’s inflation numbers, which will provide more color on trends. Economists expect the data to show that the headline CPI eased to 2.6%, the lowest level in over two years.

If these estimates are correct, they mean that the Fed may decide to deliver a 0.50% cut as it continues focusing on the labor market. 

Gold/silver ratio forms a double-top

Gold/silver ratio

Meanwhile, the gold/silver ratio has been in a slow upward trend in the past few months. It jumped from a low of $72.80 in May to a high of $90 in August. Most recently, however, the  ratio has formed what looks like a double-top chart pattern, a popular bearish sign. 

This means that the gold/silver ratio may soon have a bearish breakout in the coming weeks. A low ratio is often a sign that gold is relatively cheap compared to silver.

Gold price forecast

Gold price

Gold price chart | Source: TradingView

Turning to the daily chart, we see that gold has been in a strong bullish trend in the past few months. As a result, it has remained above the 50-day and 100-day Exponential Moving Averages (EMA).

However, gold has formed a rising wedge chart pattern, which is shown in black. This wedge is nearing the confluence level, meaning that it is ripe for a bearish breakout since it is nearing its confluence level.  If this happens, gold will likely drop to the 50-day moving average at $2,450.

On top of this, gold has formed a bearish divergence pattern as the Relative Strength Index (RSI) has formed a series of lower lows and lower highs.

Silver price analysis

Silver price

Silver chart by TradingView

Silver has also pulled back in the past few weeks. It has dropped from a high of $32.47 to $28 and moved below the 50-day moving average. On the positive side, silver has formed an inverse head and shoulders pattern, which is a popular reversal sign.

Therefore, there is a likelihood that silver will continue rising as bulls target the neckline of the inverse H&S pattern at around $29.50. 

The post Gold price to sink, silver to rise, as the gold/silver ratio double tops appeared first on Invezz


Disclaimer

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations, and video (Content) is a service of Kalkine Media LLC., having Delaware File No. 4697309 (“Kalkine Media, we or us”) and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media.
The content published on Kalkine Media also includes feeds sourced from third-party providers. Kalkine does not assert any ownership rights over the content provided by these third-party sources. The inclusion of such feeds on the Website is for informational purposes only. Kalkine does not guarantee the accuracy, completeness, or reliability of the content obtained from third-party feeds. Furthermore, Kalkine Media shall not be held liable for any errors, omissions, or inaccuracies in the content obtained from third-party feeds, nor for any damages or losses arising from the use of such content. Some of the images/music that may be used on this website are copyrighted to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures/music displayed/used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source (public domain/CC0 status) to where it was found and indicated it, as necessary.
This disclaimer is subject to change without notice. Users are advised to review this disclaimer periodically for any updates or modifications.


Sponsored Articles


Investing Ideas

Previous Next