After an initial bounce from its recent lows, the price of silver has been performing well this week.
Although silver prices did initially plateau and then retreat again last week, the metal formed a higher low, which bodes well for near-term action.
Last week, I told you that silver‘s bounce had been timid but conditions were ripe for a strong rally.
Since then, silver’s renewed climb has brought the metal to a new intra-day high that has so far bested its levels of the last two weeks. The price of silver today is trading at $14.83 in morning trading.
Now that the Jackson Hole central bankers’ meeting is behind us, markets can digest its effects. And despite U.S. Federal Reserve Chair Jerome Powell reiterating his plans for steady rate increases, the dollar has waned since late last week.
Some of that is likely thanks to central bankers’ concerns over rising trade wars.
But U.S. President Donald Trump’s recent criticisms of Fed rate hikes and now news of a U.S.-Mexico NAFTA deal, managed to help deflate the dollar even further.
Here’s a closer look at how silver prices (and the dollar) are trending this week…
Here’s How the Price of Silver Is Moving This Week
Silver’s second bottom of the last two weeks was a higher low, and the metal has since bounced back in a healthy way.
The DXY softened into Wednesday before the FOMC meeting minutes were released. The dollar then climbed into Thursday thanks to President Trump’s political woes due to his connections to Cohen and Manafort. The possible new hawkishness that came from the Jackson Hole meeting was also bullish for silver prices.
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But by late Thursday, the dollar would peak at 95.65 and then retreat to just above 95 by late Friday.
Here’s the DXY’s action of the last trading week:
Monday’s news of a deal between Mexico and the United States on NAFTA precipitated broader weakness for the dollar as trade tensions softened.
That helped contribute to an even softer DXY, which touched 94.7 just after midday before recovering slightly by end of trading.
Silver would weaken on dollar strength by Wednesday’s close thanks to a confirmation from Fed minutes that two more rate hikes are likely this year.
That allowed the dollar a small bounce before finally resuming its downtrend started the previous week, and silver rallied on that weakness to reach $14.86 by Monday’s close.
Now, here’s where I see the price of silver heading from here…
Here’s What’s Next for the Price of Silver in 2018
The dollar certainly looks like it has performed a “fake out” rally, retreating from the DXY rally to 97 two weeks ago.
Since then, the DXY has reached back below the top end of its 93.5 – 95 range from late May to early August. Both the relative strength index (RSI) and moving average convergence divergence (MACD) show downward momentum, and the dollar is now below its 50-day moving average.
As I explained in my latest gold update, both Trump and U.S. exporters want a lower dollar, and given the exploding $1 trillion deficit, the Treasury will need a lower dollar as well.
If there’s some follow-through on dollar weakness as I expect, I’m looking for the DXY to at best trade between 92-95 and more likely retreat to the high 80s.
Meanwhile, silver’s action since bottoming in mid-August has looked good.
Both the RSI and MACD have turned up since then, confirming the recent rally.
From this point, I think continued strength is likely. I’d expect to see the psychological $15 level breached, then $15.60 as the next logical target.
Looking at technical indicators, we see some interesting clues.
The silver-stocks-to-silver ratio has bounced back even stronger than silver itself.
Stocks often lead the metal, and this could be a clue that silver should keep climbing.
As for the gold-to-silver ratio, it shot up since mid-August, suggesting silver has once again become very cheap compared to gold.
Historically, the ratio has tended to peak around 80 before falling back. As a contrarian signal, it’s looking really good for silver as the ratio has just hit 82, possibly having peaked. I’d expect to see a steady drop back to about 78, which would imply around $15.50 silver with the gold price currently at $1,210.
According to Wells Fargo Investment Institute, silver is the best investment choice right now.
In a note to clients, Well Fargo Real Asset Strategy head John LaForge said, “At the top of our commodity buy list are metals, especially precious metals. Silver looks to be the best buy.”
Wells Fargo also believes that dollar strength will continue to fade into year’s end.
With all of that, I agree wholeheartedly.
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