Written by Will Peters
Wednesday, 25 May 2011 11:10
The gold/silver ratio has been little changed over recent days, but silver prices could be set to outperform should risk sentiment pick up.
The spot silver price is at $37.20 an ounce at 12 PM in London.
The spot gold price is at $1521 an ounce.
Prices continue to consolidate below $36.44, the 23.6% Fibonacci retracement of the 4/25-5/6 decline. A push higher through this barrier exposes the 38.2% level at $38.99.
Near-term support lines up at $32.32.
The correlation with the S&P 500 remains significant, hinting silver remains anchored to broad-based sentiment trends and is likely to rise as stock index futures tracking the US benchmark creep higher overnight.
The gold/silver ratio has been little changed over recent days, but as we have noted previously, the cheaper metal is likely to outperform when risk appetite is on the rise, as seems to be the path of least resistance over the next 12-24 hours.
Looking at gold prices we see that prices continue to consolidate between $1519.55, the 50% Fibonacci retracement of the drop from the May 2 high and a rising trend line set from late January. Piercing this downside barrier would amount to a material, medium-term trend change, opening the door for protracted gold weakness over the coming weeks. Initial downside targets line up at $1462.05 and $1444.00. Alternatively, a break higher exposes the 61.8% Fib at $1533.12.
Gold remains firmly correlated with the S&P 500, with index futures moving higher to hint the metal is likely to remain supported on Tuesday. As with oil however, another soft set of US economic data may prove to undermine sentiment anew. With that in mind, it should be noted that given the focus on June’s expiry of the Fed’s QE2 program over recent weeks, a dour set of US data may be interpreted to mean the central bank will not rush to unwind stimulus measures and actually prove supportive for risky assets.
