Are Silver Prices Going to Rise?

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Silver has been rising in the last couple of trading days, especially as certain economic data from Europe has been bullish.

So are silver prices going to rise higher by the end of the year?

Before we get to my silver price prediction, here’s how the price of silver is trending this week.

How Silver Prices Are Trending This Week

Silver prices popped on Monday to an intraday peak of $17.79, then quickly retreated back to the $17.55 level. But then early Tuesday it rallied up to $17.75, and kept bumping up against that resistance level.

Since then, the price of silver has mostly been flat, and it’s trading today at $17.75 still.

Manufacturing numbers have surprised on the high side recently. That points to improving economic activity, potentially helping demand for industrial metals.

Silver’s uses run the gamut from solar panels to smartphones, and its consumption has climbed as much as 35% in the first half of 2016.

Trending Now: Our Newest Gold Price Prediction Indicates Triple-Digit Returns by 2020

And the interesting part in the silver price’s climb is that it’s come despite considerable strength in the U.S. Dollar Index (DXY).

A rising dollar typically puts pressure on silver prices, as the stronger currency means it takes less of it to buy the same quantity of metal.

At the same time, silver hedgers have cut their net short positions, indicating they feel silver prices don’t have that much downside left.

Let’s delve into these points in some more detail.

Are Silver Prices Going to Rise from Here?

Monday’s short-lived rally looked like silver was testing “higher waters.” The rally came as the dollar was being dominated by sellers. But as the dollar recuperated midday, silver quickly sold off to pre-rally levels.

But Tuesday brought renewed strength, and this time it stuck.

Here’s how the price of silver has been acting very recently:

Silver prices still appear to be consolidating in a range between $17.35 and $17.75 since early October.

But the bullish action of the last few days is impressive, especially given that the DXY has also been rallying. Here’s a look at the DXY:

What’s more, with Monday’s close, we’ve gotten the golden cross for the U.S. Dollar Index that I’ve been suggesting to look out for. That suggests we could even see more strength in the dollar over the next weeks.

And on Tuesday, the DXY even touched as high as 99.12 on an intraday basis.

You can clearly see from the accompanying chart of the U.S. Dollar Index that it has surged in the past month and could be working towards a possible breakout from its trading range of the last two years.

That range has kept the DXY in check, consolidating between 92.5 and 100.

My sense is that the U.S. dollar is rising for a number reasons, which include increasing global uncertainties like Brexit, the upcoming U.S. presidential election, and ongoing Middle East and South Asian tensions.

Given also that the market is pricing in a rate hike by the Fed at its mid-December meeting, the dollar is getting a boost that could well take it higher still. A breakout above 100 for the DXY would be bullish for the dollar and potentially bearish for precious metals like silver.

Commitment of Traders (COT) reports have shown a considerable drop in the past week for “smart money” hedgers, who went from net short 100,818 silver contracts in late September to net short 74,911 silver contracts by Oct. 18. That suggests a view that downside risk in silver prices has lessened.

At the same time, COT reports indicated that money managers pared back their speculative net long positions for a third consecutive week. This is considered a contrarian indicator, pointing as well to a possible interim low for the price of silver.

With the gold/silver ratio still in the neighborhood of 71, it takes 71 ounces of silver to buy one ounce of gold. That’s historically high, and not likely to persist for long.

Still, retail demand for silver has remained strong. U.S. Mint sales of silver coins were at their second highest weekly level since January. And if you look at the overall sales levels year to date of silver American Eagles versus gold American Eagles, silver’s getting $60 for every $100 spent on gold.

So retail investors have a bias towards silver, something likely to help push down the gold/silver ratio, while pushing up silver prices.

After we can move beyond the current consolidation in silver, I’d expect silver to rapidly regain $20, with an eye towards $22.

 

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