As evidenced in the chart below, gold has further decreased out of the correction zone considered to be ideal, 38.2% – 50.0% Fibonacci retracement, or $1283 – $1301 for the July to September time period. It could continue to fall down to $1240 at this juncture without breaking from the technical model.
The market message stays consistent: gold is retesting the breakout of the 2011-2017 trend, as evidenced the by the magenta line below. The retest period is shown in green for the intermediate period.
This week, gold was down to $1275, almost a $10, or 0.8%, difference at the time of final trade on the New York COMEX for December futures.
Silver broke out of this trend by finishing the week at an increase of $0.11, or 0.7%, and closed at $16.79. The gold to silver ratio, or the number of troy ounces of silver required to purchase one troy ounce of gold, is showing a falling in the short term market.
Lessons from a Falling Gold to Silver Ratio
This notable change in silver and gold prices encourages a new look at the ratio. The chart below will show the trading desk, as it allows a look at intraday price data, instead of the COMEX-only price data shown through our normal provider.
The important details to note in regards to the gold to silver ratio from 2011 to now:
- The rise in the 2011 – 2016 ratio corresponded with the fall of precious metals prices, as gold held its value more consistently.
- The surging of gold and silver prices in 2016 coincided with the ratio breaking lower through the rising channel in April, with a decrease from 84 to 64 of ounces of silver needed to buy one ounce of gold in July.
- From July 2016, both metals have evened out and the gold to silver ratio has shown a generally rising trend.
- In July, the ratio hit its peak at 85 in the deepest point of the Flash Crash of silver, just reaching the lower broken boundary of the 2011 – 2016 channel. This can be seen on the chart as a retest of the broken channel and shows a spike high, which was quickly rejected by the market.
The increasing channel of 2011 – 2016 was categorically ended during the metals surge of 2016. This signaled a long-term trend change, which we are in the early stages of even today.
The next surge of this kind is expected when the gold to silver ratio breaks lower from its secondary rising trendline, seen on the chart at its beginning in July of 2016.
Presently, this level would indicate 70 ounces of silver are needed to purchase one ounce of gold.
Takeaway on Precious Metals Prices This Week
Based on the present retracement seen on Friday with gold at $1260 and silver dropping for a short time to $16.30, gold may have corrected so that it still falls in the valid retest zone of its longterm 2011 – 2017 downtrend.
Silver’s performance on Friday is seen as a positive early sign for the market as a whole.
Gold is expected to continue to outperform its 2016 high of $1378 on the next primary wave, with silver staying more consistent in the time needed to top its previous high of $21.25. Any decrease in silver should be seen as an opportunity.
Bullion Exchanges Market Analyst
Christopher Aaron has been trading in the commodity and financial markets since the early 2000’s. He began his career as an intelligence analyst for the Central Intelligence Agency, where he specialized in the creation and interpretation of pattern-of- life mapping in Afghanistan and Iraq. Technical analysis shares many similarities with mapping: both are based on the observations of repeating and imbedded patterns in human nature. His strategy of blending behavioral and technical analysis has helped him and his clients to identify both long-term market cycles and short-term opportunities for profit.
This article is provided as a third party analysis and does not necessarily match the views of Bullion Exchanges and should not be considered as financial advice in any way.