Silver price action this week, though muted, has shown some slight bullishness.
With gold essentially flat, the price of silver has managed to gain nearly 1.5% as it rises from price and sentiment lows.
The other thing that may be motivating silver buyers is the extreme level of the gold-to-silver ratio.
Since recently bumping up against 85, a level not seen in over 25 years, the ratio has pulled back as savvy investors are starting to scoop up the deep-value metal.
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Now, silver is likely to wait and follow gold’s lead as we move into the next FOMC meeting this week. My take is the dollar could see a bounce from the expected rate hike, then sell off in the following days.
From there, I think we could see essentially the reverse happen, with the dollar selling off and silver and gold beginning to rally.
Before I get into my newest silver price prediction, here’s a closer look at this week’s action…
Here’s How the Price of Silver Is Trending Now
Though not outstanding, silver prices did make some progress over the last five trading days.
The grey metal has managed to stay solidly above $14 despite a somewhat neurotic dollar index.
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Even with trade tensions ebbing and flowing, markets have been grinding higher. And that continues to attract capital as investors are increasingly feeling left out of this multi-year rally.
The dollar index was consolidating around 94.5 in the early part of last week. But silver was still able to muster a gain, moving from about $14.10 to $14.24.
Even so, renewed dollar strength after the DXY dropped to 93.90, then regained 94.25, caused silver to retreat from a high of $14.40 early on Friday to end Monday at $14.23.
Now, here’s what we can expect from the price of silver going forward…
Here’s My Long-Term and Short-Term Silver Price Prediction
The dollar has continued weakening and just bounced from the bottom of its multi-month range.
After touching the lower bound support at 93.5, the DXY is up slightly. I think this is in anticipation of the expected Fed rate hike. Also, the fact that the relative strength index (RSI) had reached down near 30 meant some sort of relief buying was to be expected.
I think this strength will be short-lived. The dollar has been selling off pretty hard since mid-August. It’s likely that the rate hikes of this week and December have been priced in by the market. That’s why I don’t think that any dollar strength has real legs.
I believe we’ll see a resumption of the dollar’s downtrend, which is likely to pull the DXY at least to 92.5, the current 200-day moving average, and then possibly lower to test the 88.5 – 90.5 range of February to April.
Silver’s very recent action continues to look constructive.
Confirming this recent action are both the RSI and moving average convergence divergence indicators which have been trending upward simultaneously.
As well, fresh moves in the gold-to-silver ratio are showing the start of a reversion to the mean.
The ratio just recently peaked at an extreme of 85. We have to go all the way back to September 1993 to see the ratio reach such levels.
Back then, the ratio quickly dropped to 66 shortly after. And since 2003, each time the ratio approached 80 it soon dropped back to at least 66, and more typically 55.
At current gold prices, a gold-to-silver ratio of 66 would mean silver soaring to $18, for a 50% gain. And yet $18 doesn’t seem at all far-fetched, as silver traded there as recently as April last year.
In the near term, I’d expect silver to regain $15 the wake of this week’s expected rate hike, then follow on to about $15.60 as silver regains its July/August consolidation level.
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