While precious metals have recently been under pressure from the strengthening dollar and rising bond yields, the past two weeks have left us with a very interesting picture. And it is about maintaining the Gold / Silver Ratio (GSR), i.e. the valuation of gold in silver. It shows how many ounces of silver you have to pay for an ounce of gold. Currently, it is about 85.5. If we look at the history of the last five decades, this is a relatively high reading and in the long term (subsequent years) there is a greater chance that the GSR will be lower.

Technicians will also see an attempt to initiate a turn from one of the potential resistance zones in the monthly chart above. There are still two weeks until the end of the month, so a lot can change here. So let’s take a closer look at the weekly interval.

Already two weeks ago, the first symptoms of troubles in the area of ​​resistance appeared. However, silver versus gold has shown its strength more clearly in recent days, which is why a long supply weekly candle appears on the GSR chart. Moreover, if we look at the upward movement from the first half of 2021, as a rule, it should be a correction of the downward wave from 2020-2021. When do we get a technical signal that a given price movement may fluctuate? For example, when the structure of the higher and higher lows is broken. These have been marked on the chart above with green bars.

https://tavex.pl/comex-pod-sciana-run-na-fizyczne-srebro-coraz-blizej/

The current, relative strength of silver should not come as a surprise, especially those following recent entries, when we looked at the drained stocks of physical metal from COMEX, LBMA or SGE (Shanghai Gold Exchange) vaults, but also the price drop below the average cost of mining, or very optimistic changes in positioning main participants of the futures market in COT reports (Commitments of Traders).

https://tavex.pl/banki-bulionowe-nie-sa-zainteresowane-wyprzedaza-metali/

Therefore, if it actually turns out that the ratio of gold to silver will end this 1.5-year upward movement and now begin to expand the turn towards the south, it is worth considering how the dollar prices of both ores behaved in such an environment. Below is a chart with GSR in the upper panel, gold in the middle and silver in the lower panel.

I have marked the local RS peaks with vertical lines. Most of the time, gold grew. Silver in all. The conclusion is therefore quite clear – a decrease in GSR would be very desirable by investors in the precious metals market, especially those focusing on their dollar valuations.

The currently visible changes on the GSR are also worth referring to the current behavior of the dollar price of gold itself, which in recent days attacked its technically very important support in the region of USD 1675-1680.

Its importance can be seen at first glance in the above weekly chart. Every technician is probably aware of the consequences of permanently destroying this area. In the worst case scenario, you will have to reckon with reaching a double peak ($ ​​1,350). The above strong support appears around USD 1,450 (covid liquidity hole). As a rule, if the price of gold descended into these areas, it would be the same as the dollar appreciated at the same time, so the price of gold in PLN would probably decline less. In addition, it would most likely be accompanied by some collapse in the stock markets, which usually negatively affects the paper gold price in the short term, but not necessarily on the price of physical gold.

Something is not right here

Fall in gold price and GSR at the same time? The current decline in the gold-to-silver ratio is short-term (only two weeks). However, if it tends to persist, it may delicately suggest that the fall in the dollar price of gold on paper does not necessarily meet the technical ranges indicated above. In other words, the more GSR signals downward pressure, the more the chances of a bearish gold-only trap will increase. Let us remember that there are two more critical weeks ahead of us. Only then will both the month and the quarter end, so we will know the final shape of the candles in these intervals.

The bulls have two more weeks to pull the prices. Above, the monthly (left window) and quarterly (right window) intervals. Just pushing prices above $ 1,700 again would look good. Not to mention the possible end of September closer to $ 1,750. The behavior of GSR in recent days may therefore suggest that the target defense scenario for key support in gold remains realistic.

The financial market clearly falling shows that it is afraid of Wednesday’s FOMC meeting and Powell’s conference. So there is a lot of hawkish rhetoric in prices, and this, as always, creates a space for some rebound (selling the facts). Powell, seeing the recent changes in Wall Street indices, but above all the bond yields records and the renewed tendency to reverse the curve, may try to sweeten the markets in such conditions. There is a much greater chance for this than in a situation in which the meeting would be amid excellent moods (after increases). If it did, it would be a potential leap to work on the lower shadows of the monthly and quarterly gold intervals, which would leave the market 1.5 weeks for this.

Tomasz Gessler