Tuesday, 29 August 2017

Bullish Gold Ratio Charts

I begun writing this article on Sun 27 Aug 2017 before the gold broke out of its pivotal $1300 in the following day, which simply strengthens these bullish charts. You could say that these charts are supportive of the breakout (I didn't want to write about the $1300 breakout so soon for fear that this may just be another false breakout just like the June's false breakout).

So all these charts are 2 days old.

Instead of actual gold price chart, these ratio charts provide different perspectives and insights into the gold market.

 Gold to DXY Ratio 

Monthly Gold / DXY Ratio Chart from 2002 to 2017
Monthly Gold / DXY Ratio Chart from 2002 to 2017
(Click chart to enlarge)

Gold and US Dollar (based on DXY) has an inverse relationship with each other. I.e. when the king dollar or DXY falls, gold tends to go up.

Looking at this very long term chart, the gold's bull market is corresponding with the rising chart from 2002 to 2011. The gold's bear market from 2011 to 2017 can also be clearly seen in this ratio chart (as well as the gold's spot price chart as described in my article series entitle "The Gold Bear Market's Last Technical Resistance".)

I also highlight the bear rally in the chart, which i repeatedly said in the article series  "The Gold Bear Market's Last Technical Resistance" that the rally in the 1st half of 2016 was nothing but a bear rally. This chart clearly illustrates that in another way.

More importantly, based on this ratio chart, we have broken out of the downtrend, or that the gold bull market has begun for 4 months! (Each bar is a month).


 GDX to GLD Ratio 

GDX to GLD Ratio Chart from 2011 to 2017
GDX to GLD Ratio Chart from 2011 to 2017

These ratio chart clearly shows in another way that a double bottoms were formed in the late 2016, which also marked the bottom of the gold 6-year bear market. It's this reason that led many to call this as the start of a gold bull market. Well, the end of a bear market doesn't always followed by bull market. In our case, it was followed by consolidation. It's not until 2017 that many more signal are flashing that a bull market has begun as indicated by many technical yardsticks.

One of these many signal is the GDX to GLD ratio chart where the downtrend just broke out of the downtrend since last year August high.

The Risk-On and Risk-Off terminology are often used in describing the risk appetite in the equity market or simply investment money in general. In this case, i apply them to the gold market specifically.

In other words, when the gold traders seeing that the gold market is bullish, they put on a Risk-On trade. Otherwise, they put on the cautious Risk-Off trade. So the recent breakout indicates bullish price action.


 Gold to Silver Ratio 



This ratio chart is an oldie but goodie chart. A perennial classic. When this ratio hit above 80s, gold is very bearish, and marked its bottoms. These 3 ratio tops corresponding to 3 price bottoms.

There's nothing can better illustrate than the gold to silver ratio in terms of the Risk Appetite in precious metal markets because when gold is bullish, silver bugs are in general more - let's call them enthusiastic - than gold bugs.

Again (and again, and again, and ...), in the 1st half of 2016 after gold price bottomed, it did a moonshot, which sent this ratio down to the mid-60s. But this was too fast too soon. And the correction was equally dramatic leading to this ratio to march back its upper range. But the shooting star formation is bullish, reversing its bearish price action.


Things are looking up for gold market after some disappointing price actions in the 2nd half of 2016. While prices in 2017 have not yet broken above 2016 prices, technically, it's better than the price actions in 2016 with its steep price rise that could only be described as a relief/bear/sucker rally. The consolidation in the last 12 months are more constructive, technically.




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