Silver is definitely outside the band which means either gold will fall or silver will need to catch up. Historically, the ratio averages between 40 and 60, so outside this ban can indicate a coming reversion to the mean. The Gold/Silver Ratio is used by traders to determine relative value between the two metals. Gold and silver are very highly correlated, but do not move in perfect lockstep. Outlook: Bearish if dollar breaks through Gold Silver Ratio If the DXY breaks through the recent high, then it could create more trouble in the gold market. After a brief correction, the DXY is once again moving up with a massive move this past week. The DXY burst through resistance at $105 and reached as high as $109 in July. The dollar has been on an absolute tear for months now (orange line above shows the inverse move). A big move up in gold will often occur simultaneously with a move down in US debt rates (a move up in Treasury prices) or a move down in the dollar.įigure: 10 Price Compare DXY, GLD, 10-year Price action can be driven by activity in the Treasury market or US Dollar exchange rate.
RUNWAY FASHION EXCHANGE DRIVERS
Until the shorts start to get squeezed in silver, this looks more neutral than bullish.įigure: 9 Silver Volume and Open Interest Other Drivers USD and Treasuries Silver is closer to average but the COTs report suggests this is probably driven by the short side. Trade volume in gold is near the lowest in years and is due for a rebound.
The charts below show more activity tends to drive prices higher. Love or hate the traders/speculators in the paper futures market, but it’s impossible to ignore their impact on price. When this trend reverses, gold could start flying higher being led by a surging mining sector.įigure: 7 Arca Gold Miners to Gold Historical Trend Trade Volume This shows traders have never confidently bought into any gold momentum, anticipating price advances will be short-lived. Looking over a long time horizon shows how badly the miners have underperformed gold over the last decade. This past week showed another poor showing by the miners indicating there may be more downside ahead in gold in the next few weeks.įigure: 6 Arca Gold Miners to Gold Current Trend The last time gold was above $1800, the miners were much higher. The recent price jump above $1800 was not confirmed by the miners. The gold miners have been very consistently leading the price of gold in both directions. Any increase in margin could create a forced liquidation in shorts.įigure: 5 Silver Margin Dollar Rate Gold Miners (Arca Gold Miners Index) This suggests that shorts have taken advantage of the lower margin rates. This is a combination of multi-year lows in gross longs and multi-year highs in gross shorts. The COTs report shows positioning in silver is still net short in Managed Money. When open interest gets this low it generally means the next move is up. This suggests dry powder is ready to ride the next big move in either direction. Open interest is also at multi-year lows. Margin rates in gold are near two-year lows, but this has done little to spark interest. Silver is similar to gold with the price ($19.07) also falling back below the 50 ($20.02) and 200 ($22.69) DMA. With current price ($1763) falling below the 50 DMA ($1782) this week and well below the 200 DMA ($1842), momentum is down. The false breakout in gold can be clearly seen below with a big move of the 50 DMA above 200 to only get ripped back down. Even when gold rebounded, silver was unable to muster enough strength to get its momentum back.įigure: 1 Gold and Silver Price Action Daily Moving Averages (DMA) Silver has been more volatile and fell through strong support at $22 back in May. For now, gold is back in the consolidation range of $1750-$1800. $1800 may not be comfortably in the rearview mirror until $2100 is taken out. $1750 has been even stronger support though, with fewer breakthroughs and smaller moves. Each time, gold eventually runs out of steam and falls back below. Gold has broken through $1800 at least 10 times over the last two years, sometimes in an explosive fashion. With a large pullback from recent highs, is gold about to fall through another floor, or is it building support within the old range of $1750-$1800 where it was trapped for months? Resistance and Support While gold rebounded strongly, it ran into stiff resistance and more hawkish talk by the Fed. It suggested the FOMC and GDP could spark a short squeeze based on the overly bearish COTs report. The price analysis last month concluded that the market might have seen capitulation.
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