Precious metals retreat as Commodity Index undergoes rebalancing – OCBC

Recent Movements in Gold and Silver Amid Commodity Index Rebalancing

Overnight, precious metals such as gold and silver experienced declines as the annual rebalancing of major commodity indices—including the Bloomberg Commodity Index—kicked off on January 8 and will continue for five business days. This adjustment, which follows established guidelines based on factors like liquidity and production figures, will result in reduced index weights for gold and silver. The strong rally in 2025 had previously pushed their weights above target benchmarks, according to OCBC FX analysts Sim Moh Siong and Christopher Wong.

Mechanical Selling Drives Recent Price Action

The analysts emphasize that the current selling pressure on gold and silver is largely technical, stemming from funds that passively track commodity indices and are required to rebalance their portfolios. This activity is not a reflection of changing fundamentals for these metals. While such rebalancing can temporarily disrupt prices, it also offers an opportunity for market observers to assess whether gold and silver prices remain resilient despite these mechanical forces, especially as some question the longevity of the recent rally.

Technical Outlook for Gold and Silver

• Gold: Momentum indicators are neutral, with the Relative Strength Index (RSI) declining. Immediate support levels are at 4393 (23.6% Fibonacci retracement from October low to December peak), 4368 (21-day moving average), and 4296 (38.2% Fibonacci retracement). Resistance is found at 4500 and 4550, which mark recent highs.
• Silver: Daily charts indicate that bullish momentum is waning and RSI is falling, suggesting a tilt toward downside risk. Key support levels are at 75 (23.6% Fibonacci retracement from October low to December peak) and 70.60 (21-day moving average). A drop below these points could lead to further declines.

XAU/XAG Ratio and Further Technical Insights

Ongoing price developments warrant close observation. Resistance for the XAU/XAG ratio is noted at 82 and 84. Technically, a rebound in this ratio is possible following the recent sharp decline. Daily MACD shows a bullish divergence, and RSI has recovered from oversold territory. Additional resistance levels are at 62, 62.30 (21-day moving average and 23.6% Fibonacci retracement of the October to January selloff), and 66.50. Support is established at 54.33, marking a double bottom formation.