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Precious Metals Briefing

The bears tried to bring the $GOLD and $SILVER prices to their knees last week. But they lacked the strength. The correction should be coming to an end.


Last week, the precious metal price came under significant pressure, even briefly falling below the 1900 dollar (gold) and 24 dollar (silver) mark on Tuesday. However, the bears' spring fever ended at 1890 dollars and a strong intraday turnaround occurred in each case. From a technical perspective, this has created a swing low. Confirmation is still pending. However, such a swing low can represent a trend reversal signal in the chart technique.


Frequent correlations not provable

Certainly, many are now writing off gold because the stock markets are in demand again. But correlations such as "strong stock market = weak gold price" cannot be proven historically and mislead investors.


The recent past shows this. Time and again it is claimed that the gold price cannot rise when the dollar is strong. Yet the recent rally in the gold price towards its all-time high was accompanied by a strong dollar (see chart $EURUSD). The dollar index hit a cyclical low of around $89 in June 2020 and recently climbed to over $99 - over the same period gold jumped from around $1880 to over $2,000 at its peak.


A similar correlation that is repeatedly invoked: "Gold cannot rise when US yields rise." This statement, too, proves not to be resilient, as the recent rally proves. Since the low of 1.25 per cent in August 2021, yields on ten-year US bonds have doubled to around 2.5 per cent. Over the same period, the price of gold has risen from $1700 to around $1950. This correlation has also been exposed for what it is: a myth.


Chance of a new all-time high

Correlation are deceptive, even the obvious ones. Gold is surrounded by a few such myths, very few of which prove to be resilient. What does not lie, however, is the chart. There are technical models that work on a cycle basis that have tended to point to a bottom in gold in early to mid-April. The swing low at the end of March would therefore be a bit too early. However, such models have a certain time variance. The bulls have built a bastion down to the breakout level at 1840 dollars, which they will try to defend. The correction, overdue after the previous rally, should be nearing its end. Tuesday's swing low may even have already marked the low. On the next rise, the bulls have a chance to break the all-time high.


Silver has catch-up potential

It is true that the precious metals market already has catch-up potential with a depreciating USD due to the ECB's possible interest rate hike. But the GOLD-SILVER RATIO must also be taken into account here. This is one of the few correlations that can be considered historically safe. The moving average here is 61.34, while today we are at 77.71 (above 80 silver is very cheap, below 40 very expensive). Thus, silver is currently quite cheap in relation to the historical development since 1973 with additional catch-up potential, which is why we have a larger silver component in the portfolio. To visualise it: the moving average is like the dog owner out for a walk and the daily ratio is the dog on the leash. Sooner or later, the dog will always run back to the owner (the average), even if larger distances are possible in the meantime.


Have a great week!


BR


See GOLD-SILVER RATIO: https://www.gold.de/kurse/gold-silber-ratio/#:~:text=The%20Gold%20Silver%20Ratio%20(discounted%C3%BCrzt,Price%20f%C3%BCr%20one%20Fine%20Ounce%20Silver.


$PSLV $GLD

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