Gold vs Silver

Several central banks raise the share of gold in their forex reserves. For this reason, the gold prices may advance faster than silver. Let’s study the personal composite instrument (PCI) gold/silver, or XAU/XAG. Silver is the cheapest precious metal so it is far less suitable for state reserves formation than gold or platinum-group metals. Silver would require much more ample storage facilities. Will XAU/XAG advance?

Bank of China may be most keen on raisin gold share as since October 1, 2016 yuan becomes an IMF reserve currency. Now the gold accounts only for 2.1% of Chinese reserves in contrast to 60-70% in developed countries. In Q2 2016 the gold purchase rose in France, Britain, US, Canada, Vietnam and Iran. On the contrary, China purchased only around 120 tonnes which is the lowest in recent couple of years. Its purchases may rise in Q3. Forecasts say this year the global gold production is to contract by 2% compared to 2015 to slightly above 3 thousand tonnes. Since the start of the year gold prices have already advanced 27% while silver added 43%. In Q2 2016 gold rose 7% while silver added 19%. Such an outrunning growth leads to lower demand for silver in many countries. For instance, its imports to India fell.

XAU/XAG

On the daily chart XAU/XAG: D1 is fluctuating in a sideways range near the 2-year low. The MACD and Parabolic indicators have formed signals to buy. The Bollinger bands have narrowed a lot which means extremely low volatility. RSI has surpassed the level of 50 having formed positive divergence. The bullish momentum may develop in case the PCI surpasses the two last fractal highs and the upper boundary of sideways trend at 1.005. This level may serve the point of entry. The initial stop-loss may be placed below the Bollinger band and the lower boundary of sideways trend at 0.961. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 0.961 without reaching the order at 1.005, we recommend cancelling the position: the market sustains internal changes which were not taken into account.

Position Buy
Buy stop above 1.005
Stop loss below 0.961