Silver prices are proving resilient once again, despite closing last week with a sell-off after silver’s latest “flash crash.” Silver prices still managed to post a 3.3% weekly gain from the $15.37 close on Friday, July 7, to $15.88 on Friday, July 14.
The balance between QE and Treasury supply will begin to shift in July. The underlying bid it has provided for stocks and Treasuries will begin to fade.
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Aided by more dovish-than-expected statements from Federal Reserve Chair Janet Yellen and a drop in the U.S. Dollar Index (DXY) from 96 to 95.13 last week, silver seems to have bottomed out. The 3.3% rise last week came after the silver price fell on July 7 to its lowest level since April 8, 2016.
That recent bout of weakness for the price of silver also caused a spike in the gold/silver ratio. So far this month, the ratio is up 3.8%, from about 74.72 to 77.58. This means it now takes 77.58 ounces of silver to purchase one ounce of gold – an indication that the silver price is very cheap right now. Cheap silver typically entices investors to buy in, which would lead the silver price higher this year.
This supports my view that those holding their silver positions will be rewarded with double-digit returns in the coming months. That’s why I’m going to share my 2017 silver price prediction with you today.
First, let’s look at silver’s important rebound last week…
Silver Prices Gain 3.3% Last Week (July 7-14)
After settling at a 15-month low of $15.37 on Friday, July 7, the price of silveropened lower on Monday, July 10, at $15.35. Despite those early morning losses, it continued higher from there throughout the day and settled at $15.64 for a 1.8% gain.
Tuesday brought a similar early morning dip down to $16.46, but then increased buying caused the metal to climb through the afternoon. There’s no denying that the DXY’s fall from around 96.18 to 95.68 by mid-afternoon supported silver prices. They eventually closed at $15.83 for a 1.2% gain on the day.
For perspective, here’s a look at the DXY’s performance last week…
On Wednesday, July 12, Janet Yellen began her two-day appearance before Congress to give the semiannual monetary policy report. Her statements were interpreted as being accommodative toward U.S. monetary policy, meaning she didn’t advocate raising interest rates as rapidly as previously expected. Her testimony pushed silver 0.4% higher to close at $15.89.
But silver investors and traders came in for profit-taking on Yellen’s second day before Congress on Thursday. Silver opened at $15.87, nearly unchanged from its previous close. However, the dollar bounced and silver backed off as a result. After trending lower all day, the silver price dropped 1.4% to $15.67 by the end of the session.
Friday saw a big rebound from the previous day’s decline. As the DXY lost another 50 basis points overnight, silver prices surged above the $16 level shortly after the open – the highest price since July 3. From there, it backed off as profit takers sold their positions, but the price of silver still closed at $15.88 for a 1.3% rise.
And the silver price today (Monday, July 17) is continuing last week’s 3.3% rebound with another leap higher. The metal is up 1.5% today and trading at $16.12.
After last week’s much-needed rally, silver investors want to know where the metal could go from here. The way I see it, silver’s like a coiled spring that could be released at any moment for a big leg higher.
Here’s exactly where I see the silver price heading by the end of 2017…
My Bullish Forecast for Silver Prices in 2017
One of the biggest reasons why I’m betting on a silver price rally from here is the gold/silver ratio, which has seen a sharp rebound this month, as the chart below shows…
As you can see, the ratio bumped up to near 76 twice in the last few months, but it soared to a high of 79 thanks to silver’s recent sell-off. As of last Friday, it hovers near 77.58 – above the historically high 76 level. From here, I expect silver prices to start catching up to gold prices through the rest of the year.
Another interesting thing to note about silver’s latest sell-off is the outsized volume from the June 6 peak of $17.71 to the July 7 bottom of $15.37…
The spike in volume relative to the silver price decline indicates it was what’s known as a “capitulation sell-off” – a type of sell-off in which there’s a strong likelihood that everyone who wanted to sell has already done so. This could mean that there will only be buying behavior from here, which would inevitably lead to a price rally.
I expect silver prices to bounce from here. For the first bullish target, look for them to rise 3.3% from the current $16.12 level to $16.65 – near the 50-day moving average of $16.66. After that, I see the price of silver gaining 8.6% from the current level to $17.50 – near the 200-day moving average of $17.24.
The next obvious target from there will be the twice-previous resistance level of $18.50 – up 14.8% from the current level. A close above that could mean even bigger gains for the metal.
And silver stocks – represented by the Global X Silver Miners Exchange-Traded Fund (NYSE Arca: SIL) – are forming a pattern right now indicating they may also be heading higher from here…
There’s a pretty clear wedge forming, from which we’re likely to get a breakout soon. I’m willing to bet it will be to the upside, taking silver stocks even higher than the silver price itself.
Meanwhile, silver speculators have been running away scared from silver. Their record-high number of long positions on silver – which reached above 100,000 contracts just a few months ago – has dropped under 30,000, making for a great contrarian buy indicator.
The Bottom Line: The 3.3% rebound in silver prices last week was a much-needed relief from the 15-month lows seen on July 7. Thanks to the strengthening gold/silver ratio, signs of an ending capitulation sell-off, and falling number of long silver positions poised to reverse, silver seems to have a promising second half of 2017 ahead of it.
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