Although silver prices saw some mild profit taking from investors early last week, the metal took a 2.3% nosedive on Friday, Aug. 4. That loss was responsible for the price of silver’s 2.5% weekly decline since Friday, July 28.
Friday’s drop came after the release of the July jobs report that showed payrolls had risen by 209,000 jobs. That smashed economists’ expectations of 180,000. The June number was also revised up to 231,000 from 222,000.
But the even bigger piece of data was the unemployment rate, which fell to a 16-year low of 4.3%. That’s bolstered the Fed’s case for another interest rate hike in 2017, which pushed the U.S. Dollar Index (DXY) up from its two-and-a-half-year low of 92.84 on Thursday, Aug. 3, to 93.49 on Friday, Aug. 4.
Since silver is priced in U.S. dollars, any rise in the dollar’s value makes gold more expensive to users of other currencies. That usually reduces demand, which weighs on the silver price and explains Friday’s 2.3% decline.
Liquidity moves markets!Click here to learn how you can follow the money.
However, all of this just means silver is trading at a great bargain. Silver’s losses have pushed the gold/silver ratio back above 77, meaning it trades at a value compared to gold. I think this could cause a wave of buying behavior and send silver prices much higher this year.
Before I get into my bullish silver price prediction for the rest of 2017, let’s look at the price’s day-to-day movements last week…
Silver Prices Post a Weekly Decline of 2.5% (July 28 – Aug. 4)
After closing at $16.66 on Friday, July 28, silver held up pretty well on Monday, July 31, as it capped off an impressive month. It opened at $16.80 and traded mostly in that range throughout the day, settling at $16.75 for a 0.5% gain from the previous close. That gave the price of silver a monthly rise of 1.1%.
Look for the X: This mysterious “X” pattern predicts which stocks are going up – with 100% certainty. Some have gained as much as 225% in 15 days and 264% in less than a month. Learn more…
On Tuesday, silver opened a bit lower at $16.70, then bottomed as the DXY moved toward the 93 level. But by 10:00 a.m., the DXY had retreated back below 93, and silver bounced to peak at $16.79 an hour later. The silver price couldn’t hold those gains against the dollar, and the metal ended the day 0.1% lower at $16.73.
Here’s how the DXY performed last week…
Both silver and the dollar were volatile on Wednesday, with silver starting the day lower at $16.63. A mini “flash crash” dragged it down to $16.50 at 9 a.m. as the DXY was peaking back above 93. But the metal and the dollar reversed course by midday, with the former rising to $16.70 and the latter falling 40 basis points to 92.60. The price of silver eventually ended the session flat at $16.73.
Thursday saw some profit taking from silver investors even as the dollar dropped below the 93 level yet again. Despite opening at $16.53 and climbing from there throughout the day, silver prices settled at $16.63, 0.6% lower from the previous close.
As I mentioned above, Friday was marked by a huge silver sell-off as the stellar July jobs report sent the dollar higher. By 10:30 a.m., the DXY had shot up from 92.80 to 93.70. This tanked the silver price, falling all the way to $16.25 by the close. That gave it a daily loss of 2.3% and weekly loss of 2.5%.
And silver prices today (Monday, Aug. 7) are continuing last week’s losses. They’re down 0.4% and trading at $16.18.
Last week’s sharp decline has come as a shock to investors. After all, the price of silver was thought to have bottomed on July 7 at $15.37. Now that the metal is back near three-week lows, investors may be worried the rally since July 7 is coming to an end.
However, I don’t think you should worry about this recent volatility. I still believe silver prices are poised to rebound now that they trade at a discount to gold.
Here are my bold silver price targets for the rest of 2017…
This Is Where the Silver Price Is Headed This Year
As I noted in Friday’s gold price update, I expected to see a rebound in the dollar after it had reached its lowest level since January 2015 on Thursday, Aug. 3. It seems the July jobs report was exactly the bullish catalyst the dollar needed.
A 90-basis point rise in just two hours is massive for a currency, so it’s no surprise that silver responded with volatility. Its sell-off was pretty dramatic, falling from $16.59 at 8:30 a.m. on Friday down to $16.20 by 10:10 a.m.
If we look at this technical chart of the DXY, it’s not difficult to expect the DXY could have at least a bit further to run. My best guess is likely into the 94-95 range…
A continued bounce in the dollar could put a bit more pressure on silver, possibly dragging it down to as low as the $16 range. However, I expect the dollar’s bearish effect to be short term as investors pile into silver thanks to its discounted trading relative to gold.
Here’s a look at what happened to the gold/silver ratio after the dollar rallied on Friday…
Gold prices also declined on Friday, dropping 0.7% from $1,274 to $1,265. But silver’s knee-jerk sell-off was obviously worse than gold’s decline. This pushed the gold/silver ratio from 76 to 77.5.
And that made silver an even better bargain than it already was. But don’t expect this to last. Going back about 60 years, the average Gold/Silver ratio was closer to 50, and I think we are headed there again before too long.
That lower ratio means the price of silver is set to bounce back strongly in the months and even years ahead, which will likely be helped by increasing sales of physical coins…
Consider that American silver coin buyers have been taking advantage of the situation. July U.S. Mint sales of American Silver Eagles climbed 66% year over year to 2.27 million ounces, and they were also up 130% in June.
I expect silver to bottom soon after the dollar’s dead cat bounce and then bounce back from there. I predict silver prices will rebound to the 50-day moving average of $16.65 within the next few weeks at most. After that, look for it to reach its 200-day moving average at $17.15 and head even higher to the April 13 high of $18.50.
About Money Morning: Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.
Disclaimer: © 2017 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.
The post Why Silver Prices Will Rebound After Last Week’s 2.5% Plunge appeared first on Money Morning – We Make Investing Profitable.
Wall Street Examiner Disclaimer:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I am also a contractor for Money Map Press, publisher of Money Morning, Sure Money, and other information products. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. In some cases promotional consideration is paid on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.