Silver for Gold! – Correlation, Leading, GOLDSILVER Index

- In the first chart (above), we can see the GOLDSILVER index. This index shows us how many ounces of silver one ounce of gold is worth. In other words, it represents the price of gold in terms of silver.

- In the second chart (bottom left), we see the volatile child, silver's chart.

- And in the third chart (bottom right), we have the chart for shining gold.

Both gold and silver charts are D1 charts. The dates marked in red and green on them represent the days when the daily closing prices of these two precious metals were different. Green lines indicate days when silver closed higher, while red lines indicate days when it closed lower.

When we carefully examine the chart, especially the marked dates, we can observe that whenever silver has a different daily closing compared to gold, the next day, gold tends to mimic silver's previous move. Every day when silver closes green and gold closes red, gold follows suit the next day by closing green.

Silver serves as a crucial and highly consistent leading indicator for gold prices. The reason for this is quite simple!

As we all know, gold and silver prices have historically maintained a proportional and correlated relationship. However, gold is rarer and is in much higher demand by both individuals and governments compared to silver. This results in a significantly larger trading volume for gold. As we also know, for a financial product's price direction to be determined, there needs to be a consensus among people regarding buying or selling. The more people, including central banks holding gold reserves, are involved, the harder it becomes to reach a consensus. In the case of silver, the trading volume is much lower compared to gold, which means there are fewer individuals needed to determine its value. Therefore, price consensus for silver is established somewhat faster compared to gold. Gold usually accepts this consensus, especially after silver.

In summary, before making any buying or selling decisions regarding gold, taking a quick look at a silver chart can be very beneficial for you. Of course, this is not a standalone pricing method, but it is highly reliable. It not only helps in making buying or selling decisions but also serves as an excellent exit indicator when deciding to continue or close an existing position.

Now, let's talk about the GOLDSILVER index that I placed in the first position…

This index is truly fantastic for increasing our profitability. While gold and silver prices often move in correlation, their profit or loss rates are not always the same. When both precious metals rise simultaneously, one of them often rises or falls more than the other.

There are many macro and microeconomic reasons for these differences. For example, changes in central banks' demands for gold, periods of increased marriage rates in countries like India, and so on.

You might find the marriage seasonality in India interesting, so let me briefly explain... In countries like India and Turkey, it's a widespread tradition for couples to exchange gold during weddings, and in some countries, it's almost like a law. Countries with populations like India's 1.4 billion or Turkey's nearly 100 million can influence gold demand, albeit to a small extent, due to these traditions.

Returning to our main topic… Due to differences in demand and supply, the rates of increase or decrease in gold and silver prices generally vary.

With the GOLDSILVER index, even using very basic technical analysis methods, it's often possible to predict which one will rise or fall more compared to the other. And since our goal is to maximize our profits, if we have a direction in mind for these two precious metals, it makes sense to bet more on the one that the GOLDSILVER pair indicates will rise or fall more. If the GOLDSILVER pair suggests that silver could rise more than gold, then it might be more profitable to bet on silver instead of gold, or vice versa.

To summarize everything:
Before opening a position in gold, it's a good idea to quickly check the silver trend or leading technical indicators on the H4 or D1 chart.

If you have a bullish or bearish view on silver or gold, considering the GOLDSILVER index when deciding which precious metal to focus on can be an important additional indicator to increase your profits.