Hello, and welcome to CantosCharts. My name is Michael Hewson, Market Analyst at CMC Markets. Today I'm going to look at gold and silver and the gold/silver ratio.

Yesterday I talked about dollar weakness and one of the key beneficiaries of this dollar weakness has been the rise in the gold price over the past few months, and even couple of years. As you can see, there's a very strong trend line coming in from the October 2008 lows, and it basically follows the rise of the gold price, up to its recent highs around $1,387.

Last week we posted a very significant reversal candle in gold. So that's a warning sign that maybe momentum is starting to decline a little bit.

Now, don't get me wrong, I'm still fairly bullish on gold given the amount of money printing, quantitative easing, whatever you want to call it, with respect to central banks and what they've been talking about over the past few weeks and months.

But as with any uptrend you're always going to get a slight pull back, and that's what we could be seeing here. But the first indication of waning momentum; there's a very short-term trend line from the May lows around about $1,150 which comes in around about the $1,315.20 area, which was where gold bounced from at the end of last week.

So, as I say, I've highlighted the area of resistance that I've got on the chart there. But as you can see, if we go back a little bit further where the resistance previously was at $1,264, we posted a very similar candle pattern which marked a period of consolidation, and that's basically around here. A similar sort of move here - we could get a consolidation back to $1,260. But it doesn't change the overall momentum with respect to the gold price. Gold should still remain fairly well bid while central banks are looking to devalue their currencies.

The same applies to silver - a similar sort of pattern on the weekly candles last week. Not as pronounced as it was on gold but, again, it's a warning sign that maybe the current upward momentum in gold and silver is starting to lose momentum a little bit. And maybe we could be moving towards a more sideways consolidation.

One thing that you also have to remember with respect to gold prices is the fact that Diwali is coming up, which is the Indian festival where, basically, there is a lot of gold demand. So that should underpin gold prices. Also the fact that central banks are no longer selling their gold - obviously they want to hang onto it while it goes up in price.

So, again, we've got good solid demand for silver, we've got good solid demand for gold. There question that needs to be asked with respect to that - which one is the better bet?

Well, let's look at the gold/silver ratio. This is something that I look at quite a lot to get an idea of whether or not gold is getting overvalued relative to silver, or the other way around. Earlier this year - actually over the last 12 months - it's been trading in a sideways triangular consolidation. When we talk about technical analysis and triangle breakouts, what typically happens is when a triangle breaks out it goes the distance of the base of the triangle. And we can clearly see here that the gold/silver ratio has broken out in silver's favour. So silver should now start to outperform gold.

What that doesn't mean is that silver will go up faster than gold. It could just mean that it falls slower than gold.

So when you talk about out-performance of silver it doesn't necessarily mean it's going to go higher faster. It could just mean that it climbs slower. So it's important to make that distinction.

So at the moment, given the targets on this particular gold/silver ratio chart, we're looking for further silver out-performance of gold.

So, to conclude, we should see silver continue to outperform gold over the next six to 12 months, and come back to around this 50 area here, which was basically around the February/March 2008 level.

So that's gold, silver, gold/silver ratio. Thanks very much for listening. My name is Michael Hewson, Market Analyst at CMC Markets. This is CantosCharts.