A funny thing happened with the price of silver early last week. After both silver and gold dropped in the face of surging 10-year Treasury yields and the U.S. dollar, silver parted ways with gold.
Gold prices corrected, then essentially moved sideways.
Silver prices, on the other hand, rose mid-week even as the dollar was gaining and gold wasn’t.
It was impressive to see and testament to the fact that silver is extremely cheap and extremely undervalued at the moment. Now the market is slowly coming around to that same conclusion.
I think silver will continue to move from underpriced to more fairly priced. And a couple of technical indicators continue to support that view.
Before we look at those technicals, here are the recent movements in silver prices…
Here’s How the Price of Silver Is Trending Now
With the global benchmark of U.S. 10-year yields surpassing and holding above 3%, the dollar rose further, and stocks corrected, but only mildly. That’s why on Tuesday, May 15, silver dropped to an intraday low of about $16.16 near 10:00 a.m. It would test that level again early on Wednesday, but then it rose dramatically after the dollar peaked that morning.
Silver then outperformed gold the rest of the week, as gold fought the dollar and yields while silver shrugged them off and rallied.
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Here are glances at the U.S. Dollar Index (DXY) and S&P 500 over the last five trading days.
By the end of Friday, silver prices closed at $16.43. On Monday, silver was still trading at that level by midday.
It was remarkable, especially as the DXY climbed from 92.65 all the way to 93.80 in that time span. The DXY had reached a six-month high after the United States and China essentially called a trade war truce. But then traders took profits, and the dollar was back to 93.54 by 5:00 p.m.
But as I said earlier, these two technical indicators indicate the price of silver is due for a rally. Here’s where I see the price of silver heading now…
Here’s What I Predict for the Price of Silver Next
By Monday morning, as news of a possible end to trade tensions between the United States and China sank in, the DXY peaked early around 93.91 before falling back to 93.7 by mid-morning.
Time will tell, but the 94 level, which was previous support through 2015 and 2016, may prove to now become overhead resistance. At the same time, the DXY has been in overbought territory for most of the last three weeks and could peak or consolidate from here.
Any appreciable correction in the DXY will help silver. Even if it moves sideways, that could provide support for the grey metal.
Like I suggested last week, silver’s biggest challenge right now appears to be crossing the $16.80 level. But a sizeable pullback in the DXY could provide the impetus to finally get there. Meanwhile, early on Monday, silver did test down to $16.26 as the DXY peaked.
The gold/silver ratio continues to support higher silver prices.
This ratio has a lot lower to fall just to revert to its average, near 60, since the silver bull began in 2001. And that would likely do wonders to help power higher silver prices.
The silver-stocks-to-silver ratio also continues to favor higher silver, as the rising ratio suggests rising silver stocks, which tend to lead the metal higher.
Meanwhile, commercial hedgers (smart money) are still near extreme low short positions, according to Sentiment Trader.
This also supports a near-term rally in silver.
I think we could get that soon, especially if the dollar peaks right near current levels. My targets remain first $16.80 at the 200-day moving average, then $17.25 where it peaked in mid-April.
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