Gold price ratios signal early reversal: Is it time to book profits in the yellow metal?

Gold prices on the Multi Commodity Exchange of India (MCX) rebounded sharply on Thursday, gaining over 1% in line with a global rally in bullion prices. The uptick followed a wave of bargain hunting after a steep decline in the previous session. With MCX gold rate hovering near record highs, analysts caution that a potential reversal may be imminent, as several technical indicators point toward a possible near-term correction.

On April 24, MCX gold prices surged past the ₹96,000 mark after having dipped below ₹95,000 in the previous session. MCX gold ended at ₹95,962 per 10 grams, up ₹1,240 or 1.31%. In contrast, MCX silver price eased 0.04% to ₹97,475 per kilogram.

In the international market, gold prices rose on Friday and were headed for a third consecutive week of gains. Spot gold price rose 0.2% to $3,354.29 an ounce. Bullion hit a record high of $3,500.05 on Tuesday. US gold futures gained 0.5% to $3,365.90.

Are Gold Prices Set for a Reversal?

Ajay Kedia, Director of Kedia Advisory, pointed to four key gold-based ratios that are signaling early signs of a reversal. These include the Gold/Silver, Gold/Platinum, Gold/Crude Oil, and Gold/Copper ratios.

“The sharp rise in gold’s comparative strength against key industrial commodities is signaling an early warning of potential market reversals. All four ratios have surged into technically overbought zones, historically marking inflection points,” Kedia noted.

Key Technical Highlights:

Gold/Platinum Ratio has climbed to multi-month highs, underlining gold’s significant outperformance relative to industrial metals.

Gold/Silver Ratio is entering overbought territory, indicating heightened risk aversion and raising the likelihood of a mean reversion.

Gold/Crude Oil Ratio has spiked, suggesting a shift in investor preference from energy to safe-haven assets — a trend often associated with concerns over economic growth.

Gold/Copper Ratio is at historically elevated levels, typically seen during periods of economic slowdown and industrial sector weakness.

According to Kedia, these ratios collectively indicate a sectoral imbalance and the growing possibility of a near-term reversal in gold prices. Historically, such divergences have preceded market rotations that favor undervalued industrial commodities over overbought precious metals.

What Do These Ratios Indicate?

The Gold/Silver ratio and Gold/Platinum ratio, often viewed as indicators of market risk sentiment, are at multi-month highs, suggesting a broad shift away from industrial to safe-haven assets.

Meanwhile, the Gold/Crude Oil and Gold/Copper ratios — used as barometers of economic momentum versus inflation hedging — are flashing cautionary signals. The elevated Gold/Copper ratio, in particular, is nearing levels not seen since major economic downturns.

“These stretched valuations imply that gold’s recent outperformance may not be sustainable without a corrective phase. Industrial commodities, by contrast, appear poised for a potential rebound,” Kedia said.

He further emphasized that this divergence between precious metals and industrial assets may be an early indication of a broader market rebalancing or a return of risk-on sentiment.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.