The price of silver had a volatile week, climbing all the way to $17.31 on Thursday (April 19), before settling back down below $17 yesterday (Monday).
Because of that volatility, I’m going to show you today exactly where I see the price of silver heading in both the short term and the long term.
But first, we need to look at exactly why silver prices reversed course last week.
By all accounts it looks like silver speculators, who were massively short silver futures, were getting squeezed out.
Speculators, who are typically on the wrong side of the bet at extremes, had recently ended up in a net short silver position. That almost never happens, and with essentially no one left to go short silver, buyers stepped in.
That forced short speculators to cover their positions by buying, forcing the silver price rapidly higher. I believe that’s what took place last week, allowing silver to spring from $16.60 to $17.20 within a few days.
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Silver has since retreated on a wave of dollar buying that just pushed the U.S. Dollar Index (DXY) back above 90.50.
But barring a strong new rally in the dollar, something I think unlikely, silver’s likely testing the waters for a fresh wave of buying to break out from its extended consolidation.
Why the Price of Silver Has Been So Volatile in 2018
Silver enjoyed quite an impressive breakout mid-week that’s been a long time in coming.
First, there was a huge leap on Wednesday, April 18, devoid of corresponding weakness in the dollar. More than likely, it was the work of silver speculators simply getting overly short in the metal.
It was exciting to watch, as silver jumped from $16.70 to past $17.20 in just 11 hours, from very early on Wednesday morning to 1:00 p.m. It then settled back to close that day at $17.17, but the heavy lifting had been done.
On Thursday, silver actually managed to rally a bit higher, claiming the $17.31 mark at 10:00 a.m. But the DXY gained momentum and rallied from 89.6 to 89.85 by early afternoon, pushing silver back to close at $17.22.
Here are the DXY and S&P 500 over the past five days.
Thanks mainly to dollar strength and some profit-taking, silver backed off overnight Thursday into Friday. That materialized into a low of $17.05 at 6:00 a.m., a small rally to $17.16 at noon, then renewed weakness to end at $17.09.
But Monday’s extended dollar rally, which took the DXY to 90.93 by late afternoon, helped quash silver’s heady advance of the previous week, pulling it back to a low of $16.55 on the day.
Now that we know why the price of silver has been so volatile, here’s why I expect some short-term weakness ahead, followed by a rally to end the year…
Here’s My Newest Silver Price Target
Well, the dollar has enjoyed a hefty rally over the past three trading days, proving me wrong in my last silver update, when I said the dollar may have entered a consolidation phase.
That blast through the previous multi-month peak of 90.50 has bolstered the case for an interim dollar rally. It seems the overly bearish position by traders in the U.S. dollar simply exhausted the bears.
And if we look at its price chart, the next logical upside targets are first the current approximate 200-day moving average near 92, then the previous peak, of 92.5, reached in early January.
Although they’re not far from the current level, those are my upside targets. Given my view that the dollar remains in a long-term bear market, I wouldn’t expect much strength beyond that.
We can’t ignore the potential effect of a stronger dollar, however temporary, on silver prices.
The dollar surge pulled silver right back down from its breakout, to $17.20, to its current 50-day moving average near $16.55.
Now, we’ll have to watch closely silver’s reaction to any possible further dollar strength. I think it’s likely to hold the recent low it tested several times at $16.20 since early February.
Despite the strong reversal in the silver price, most of which came on Monday, the silver-stocks-to-silver ratio didn’t suffer weakness. That is, silver stocks held up, relatively, in the face of silver’s drawdown.
According to Goldmoney VP and lead researcher Stefan Wieler, silver is significantly undervalued and could see a better-than-30% jump ahead.
The 2018 World Silver Survey, recently release by the Silver Institute, said global silver scrap supply was down in 2017. It fell to 138 million ounces, or more than 50% lower than 2011 levels.
And finally, Mike McGlone, of Bloomberg Intelligence, says silver could rally 50% to catch up to the Bloomberg Industrial Metals Spot Index’s rally since June 2016.
I think silver could experience some near-term weakness, as the DXY potentially tests the 92 or 92.5 level. But beyond that, silver could still make a run for $18 this summer.
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