The Gold Silver Ratio is Above 90! Is 100 now on the Cards?

  • Commodities Analysis
  • Editors Pick

Gold and Silver both have been tanking since the start of this week, although both of them are positively correlated, Silver is clearly leading the move by falling about 34% from the last year’s (2021) highs.

Since 29 June 2022, the day Silver broke the levels of $20.5 on the international charts, we have been witnessing sharp selling in Silver, also on its way down it is continuously trapping all the enthusiastic buyers from an intraday perspective.
Also, this steep fall in silver prices has further steered the Gold Silver Ratio to trade out of its statistical resistance zone of 85.
Generally, when the Gold Silver Ratio starts to trade out of its normal statistical zone (45-85), Bullion traders wait for the ratio to reach 100 and show some bearish reversal signs. Once the bearish reversal is confirmed on the Gold Silver Daily and Monthly charts, the traders further put a chunk of their capital on Silver. (But, since the Fed and all the Major Central Banks throughout the world are constantly hiking the interest rates, multiple factors are affecting the Gold-Silver Ratio, therefore one change in the macro can affect the bullions in certain unexpected ways.)
“Silver, Why,” you ask, well since the Gold Silver Ratio measures the relative strength of Gold and Silver, traders consider Silver to be comparatively undervalued than Gold (when the ratio trades above 100), and therefore they further try to play out any bullish reversals in the bullions by buying Silver (the ‘theoretically’ undervalued metal as per the Gold-Silver Ratio.) 

Silver Technical Chart and General Overview

(Ceteris paribus) From the Charts and the technical point of view Silver clearly has a high chance of testing the levels of 18-18.50 if the 200 Month moving average(Very Strong Support) of 19.54 breaks down on a weekly closing basis. On the counterpart, the bulls might try to defend the 200-month moving average in the shorter time frame. The trend might reverse only when Silver prices closes above $20.5-20.60 (which is the breakdown point.), given that Gold Silver Ratio reverses from its interim small resistance of 93.

Since, Silver prices are already down by about 35% from the February 2021 highs, bullion traders(buyers) should wait and track the movement of the Gold-Silver Ratio, Dollar Index, and Central Bank Rate Hikes. Once, the XAU/XAG shows signs of reversal, the Dollar Index rally cools down and, the rate hikes slow down, Silver then is "theoretically and historically" expected to rise. 
Silver Technical chart

 XAU/XAG Tech Chart

What to do if one does not want to trade Silver Futures and still wants a long exposure to Silver?

Those who do not want to take the risk of trading Silver MCX Futures can also look out and start tracking SilverBees (ETF for Silver). Although the data is not adequate to perform correlation checks, (generally there should be at least one year’s data to perform such checks), but still the ETF is decently correlated with the spot prices of Silver. Do note that since the Silverbees ETF is new in the market, the financial risks of putting money in such an ETF are always higher.
Conclusion:- Bears are clearly dominating the bullion markets, also the Dollar Index is clearly testing out its recent highs. The Indian Rupee depreciation against the Dollar is also adding up to the sharp falls of the bullions. With all these things playing out together the bulls should be patient and should wait for the right levels before taking out any bullish trades on the bullions. Also, one should track all the macro economic developments, because economic events change the entire outlook. “One Macro Event can change the entire dynamics of the market!”

Check out all the upcoming expected events from the Economic events calendar. And keep an eye on Fed's Rate Hikes, and its reaction to the Dollar Index and the XAU Ratio. Stay Safe, and Trade Smartly and patiently.  
Disclaimer:- The Author is an independent multi-asset class Investor and Trader, and not a registered Investment Analyst and Advisor. This article has been written for educational purposes only and should and not be considered as an Investment or Trading Advice. Kindly contact your authorized stock advisor before taking any trades or investment decisions. Past performance is not a guarantee for a future return, nor is it an indication of any future performance. The information contained in this article has been compiled from a variety of official sources and is subject to change at any time without notice. The author gives no assurance or warranty that information on this site is current and accurate, and takes no responsibility for matters arising from changed circumstances or other information or material which may affect the accuracy of the information on this article.

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