Gold May Outperform Silver, Lifting Ratio: Technical Analysis

Gold May Outperform Silver
An ounce of gold bought as little as 46.6 ounces of silver in London on Dec. 7. Photographer: Andrew Harrer/Bloomberg

Gold may outperform silver, lifting the ratio between the two metals by as much as 20 percent, according to technical analysis by Societe Generale SA.

The attached chart shows the ratio of gold to silver steadied after dropping as low as 46.6 last week, near a two-year channel support line and the lows of 2008 and 1999. The second chart shows the ratio may climb to between about 56 and 58, which are retracement levels of the decline from June that are singled out in so-called Fibonacci analysis.

“The gold-silver ratio reached an important support at 47.5/46,” said Stephanie Aymes, a cross-commodity technical analyst with Societe Generale in London. “Gold will outperform silver to 56/58.”

An ounce of gold bought as little as 46.6 ounces of silver in London on Dec. 7, the least in almost four years. Precious metals gained this year on demand for a protection of wealth and an alternative to currencies. Some investors betting that silver may benefit from an economic recovery pushed the metal’s 2010 advance to 70 percent, outperforming gold’s 26 percent gain. Silver is used more in industry than gold.

The ratio’s 14-day relative strength index last month rebounded from a two-year falling trend support line and has been “posting bullish divergences,” Aymes said. The index fell to 14.7 on Nov. 8 and was at 36.66 on Dec. 10. Some analysts view a level of 30 as an indication of possible gains.

Gold for immediate delivery reached a record $1,431.25 an ounce on Dec. 7 and traded at $1,386 at the end of last week. Silver last week climbed to a 30-year high of $30.7025 an ounce and was last at $28.6712. The ratio was at 48.3054 on Dec. 10.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. Fibonacci analysis is based on the theory that prices tend to drop or climb by certain percentages after reaching a high or low.

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