Is the gold-to-bonds ratio signaling a major turning point for precious metals?

When analyzing precious metals markets, sometimes the most powerful signals come from relationships between different asset classes rather than from a single market alone. Today, I want to focus on a particularly revealing metric that's currently flashing a significant warning signal - the gold to bonds ratio.

The Technical Significance of the Gold to Bonds Ratio

The gold-to-bonds ratio is an important technical indicator that measures the relative strength of gold compared to bonds. When this ratio rises, it indicates that gold is outperforming bonds, which typically occurs during periods of inflation fears or declining confidence in traditional financial assets. Conversely, when the ratio falls, it suggests that investors are favoring the relative safety of bonds over gold.

What makes the current situation particularly noteworthy is that this ratio has now reached its critical resistance level at precisely the 2011 high. For those who remember, 2011 marked the peak of the last major gold bull market, when gold prices reached nearly $1,924 before entering a multi-year bear market.

The relationship between interest rates and gold is complex, but generally speaking, when interest rates rise, bond yields typically increase, making bonds (and bond ETFs, like the one that I included in the ratio) more attractive compared to non-yielding assets like gold. This can put pressure on gold prices.

However, for many investors both: gold and bonds can be viewed as a form of safe-haven and an anti-stock market bet. And since they serve similar purpose in that regard, seeing how they perform relative to each other gives us insight into how much one could be overvalued based on other factors (like excessive sentiment), simply because the ratio itself “takes out” the above safe-haven and anti-stock factors out of the price moves.

Given the current technical setup in the gold-to-bonds ratio, gold investors may want to exercise caution.

Remember that while long-term fundamental factors for gold remain positive, short and medium-term price movements can be heavily influenced by technical factors and market positioning.

Cup-and-Handle Formation in Development?

Looking at the chart pattern, there appears to be a cup-and-handle formation developing. In fact, the 2011-2025 “cup” part is perfectly ready. If gold prices decline from here, we could see the creation of the "handle" portion, potentially completing this classic technical pattern.

Now, this pattern is very bullish (in this case, for the following years), but the handle itself means declines in the ratio, and most likely in the gold price as well.

Historical Parallels Between 2011 and 2025

The parallels between the current market environment and 2011 extend beyond just this ratio. In both periods:

1. Gold approached psychologically important round numbers ($2,000 in 2011, $3,000 now)
2. Silver showed relative strength months before the top
3. Mining stocks underperformed relative to physical gold
4. Extreme bullish sentiment dominated market discourse

The gold price analysis from multiple angles continues to support this thesis of a potential major turning point.

Additional Confirmation from Silver

Several other markets are providing confirmation of this potential top, and in this articles, I’ll focus on silver.

From a broader point of view, silver has formed what appears to be its third top, mirroring the pattern seen in 2021.

(Click on image to enlarge)

It’s not only the price pattern that is similar. We see the analogies also in the performance of silver’s moving averages. The 50-day moving average (marked with blue) just moved above its recent high, and the 200-day moving average (red line) appears to be slowing down. That’s when the third (and final) top formed in 2011 – and we see the same thing right now.

Moreover, on an immediate-term basis (right now), silver is showing strength relative to gold, which often happens right before turnarounds and declines.

Conclusion

The gold to bonds ratio reaching its 2011 high resistance level is a significant technical development that shouldn't be overlooked. When combined with other indicators, it suggests that the precious metals market could be at or approaching an important inflection point.

As always with market analysis, no single indicator is infallible, and markets can always surprise us. However, when multiple independent indicators align, as they are now, prudent investors take notice. The coming weeks should provide important confirmation of whether this parallel to 2011 will continue to develop.

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