After hitting a distinct bottom early in the last week, silver prices have already bounced back impressively despite ongoing U.S. dollar strength. After starting May near $16.25, the price of silver rallied to a high near $16.47 last week.
The other challenge that silver faced was the news the market awaited from the FOMC meeting on Wednesday, May 2. After the meeting, the committee announced that it would not be hiking interest rates and said inflation continues to move higher.
After peaking on Tuesday, May 1, the gold/silver ratio has quietly begun trending downward once again. I think this is in recognition of silver’s underperformance and undervalued state relative to gold.
In the near term, the wild card facing silver appears to be the dollar, whose recent rally has weighed on the precious metal.
Despite that stronger dollar headwind, silver appears to be holding pretty steadfast, perhaps gearing up for a seasonal rally of its own…
How the Price of Silver Is Trending Now
Silver took a bit of a beating on Tuesday, May 1, as the market looked ahead to the next day, when the U.S. Federal Reserve would announce any possible rate changes. That fired up the dollar, with the U.S. Dollar Index (DXY) running from 91.85 overnight all the way to 92.55 by 11:00 a.m. That was enough to push the price of silver down to $16.07, but it bounced back to close at $16.14.
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By Wednesday, silver was hovering in the $16.35 range, and even the Fed’s statement did little to affect it, as it closed at $16.35, while the DXY shot to 92.81 by late afternoon. As the dollar retreated a bit on Thursday, silver prices hit an intraday high of $16.50 before dialing back to $16.39.
Here’s a look at the past five days of the DXY and the S&P 500, for perspective.
To end the week, the DXY rose to test 92.80 once again, but silver was undaunted and closed at $16.48. And on Monday, May 7, as the DXY temporarily reached for 93, silver dropped to $16.38 before bouncing back to $16.43 by mid-afternoon.
Now that we know what was behind silver’s recent rally, here’s where I see silver prices heading in both the short and long term…
Here’s What’s Next for the Price of Silver in 2018
So what’s in store for the dollar?
Strength in the dollar has been a bit more than I expected, though not by much, at least so far. I thought the DXY would top out at 92.5, and as I write, we are at 92.77. As far as the RSI and MACD would indicate, it is looking rather overbought. That doesn’t mean it can’t stay overbought, but it’s likely to back off a little soon.
If the dollar does manage to rally further, the next logical targets are the last two peaks, at 94 and 95. Of course, further strength would continue to weigh on silver. But given the action of the last week with a rising DXY, silver’s strength has remained impressive. I wouldn’t even count out the possibility that silver could rise moderately faced with a rising dollar.
As for silver itself, we continue to see a narrowing wedge formation.
Obviously, it could take a while longer to break out. But as the wedge narrows, it becomes increasingly likely. In any case, I expect an upside breakout, which will be a very bullish signal.
Another encouraging sign so far is that silver has managed to test, but not break below, its recent low of $16.20.
Looking at the gold/silver ratio, we get some encouraging signs there, too.
The last peak, at 81, was clearly lower than the previous one in early April, at 82.5. It seems to be heading in the right direction and bodes well for silver prices catching up to gold prices.
Patience may still be key, but I think silver’s setting up for a healthy rally this year. A break through $17.25 could help set up a rally to $18 this summer.
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