Two weeks ago, the price of silver rallied to one-month highs above the $17 level, as U.S. President Donald Trump and North Korean leader Kim Jong Un exchanged direct threats. Trump notably said the small Asian country would be met with “fire and fury,” which pushed Kim Jong Un to threaten Guam with missile strikes.
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But silver prices saw a modest decline last week despite a 1.4% bounce after the divisive Fed minutes on Wednesday, which indicated half of Fed officials are dovish while the other half are hawkish. The metal ultimately saw a weekly drop of 0.4% from Friday, Aug. 11, to Friday, Aug. 18.
Oh and wait, there’s the debt ceiling as well. The federal U.S. debt now sits at more than $19 trillion – more than the total 2015 GDP of $17.9 trillion – and that’s without accounting for unfunded liabilities like Medicare and Social Security.
Congress has until late September to get a deal done. The debt ceiling has been raised 78 separate times since 1960. But as we’ve seen over the last seven months, this is no typical administration, and if the debt ceiling isn’t raised on time, a “technical default” could tank markets and boost flight-to-safety investments like silver.
It’s impossible to know which way this will go, but owning a little silver is a great way to hold some financial insurance. And right now it’s still very cheap, as you can tell from the gold/silver ratio.
Today, I’ll discuss the ratio and how it supports my three higher silver pricetargets later this year. First, let’s take a closer look at the metal’s performance last week…
Price of Silver Declines 0.4% Last Week (Aug. 11 – Aug. 18)
After settling at $17.07 on Friday, Aug. 11, silver prices opened lower at $16.96 on Monday, Aug. 14, as the U.S. Dollar Index (DXY) rallied throughout the day. But despite the DXY climbing 34 points from 93.07 to 93.41, silver managed to pull off a 0.3% gain from the Aug. 11 close and settle at $17.12.
But overnight trading was bearish for silver, as markets turned their attention to the upcoming Fed minutes. On Tuesday, expectations that Wednesday’s minutes release would reinforce another rate hike this year boosted the dollar to 93.83 and dragged the silver price lower. It opened at $16.79 and fell to $16.71 by the closing bell, a 2.4% loss on the day.
Here’s a look at the dollar’s action last week…
On Wednesday, Aug. 16, the release of the July FOMC minutes brought a reversal for silver. The minutes indicated a sharp divide among Fed officials over monetary policy. One side said the Fed should be cautious about further rate hikes due to low inflation, while the other said more rate hikes would be a healthy way to hedge risks stemming from the strengthening jobs market.
The minutes sent the DXY plunging from 93.87 at noon to 93.56 at 3:00 p.m. This boosted the silver price to $16.94 by the close, marking a rise of 1.4% from the previous settlement.
Thursday saw the price of silver regain the $17 level despite a rebound in the DXY to 93.62. The metal settled at $17.05 for a 0.6% gain.
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Then on Friday, early morning buying pushed silver higher as the Dow Jones opened 0.4% lower. That was short-lived, however, as markets recovered only slightly throughout the day. Despite the Dow closing the session with a 0.4% loss, silver prices dropped 0.3% to $17 on the day. That gave the metal a weekly loss of 0.4%.
But the silver price today (Monday, Aug. 21) is posting a slight rebound, with the metal currently up 0.5% to $17.09. This comes as the dollar falls back to 93.07 – down 35 basis points from Friday’s 93.42 close.
Despite the wild swings on Tuesday and Wednesday last week, I think an equally important silver price factor informing the dollar right now is the gold/silver ratio. It has consolidated sideways and moved lower recently – moves which could dictate where the silver price heads next.
Here’s my view on the ratio – and how it influences my bullish silver price target…
This Is How High I See the Price of Silver Reaching in 2017
If you look at this chart of the gold/silver ratio since late February, you can see how it’s provided a little respite for silver versus gold over the last two weeks…
The interesting part here is that the ratio has been mostly below the 50-day moving average of 76 since early August, and the 200-day moving average of 72.20 is flattening out.
I mentioned in last week’s gold column that the dollar could continue to head a bit higher as its “dead cat bounce” – or its temporary rebound following its 9.4% decline this year – plays out. In that case, we might see the DXY reach 95. That would likely weigh on silver a bit, but since a dead cat bounce is only temporary, I see this silver weakness being temporary as well.
A temporary pullback is also supported by the silver price’s 50-day and 200-day moving averages, which are indicated by the blue and red lines in this chart, respectively…
Today’s silver price of $17.09 is just $0.01 shy of its 200-day moving average of $17.10. Despite being so close right now, the $17.10 may act as a short-term level of resistance for a while.
Once that rout ends, look for silver to target its two previous highs; $17.71 on June 6 and $18.51 on April 17. If the precious metal can manage to top those levels this fall, I think we could see it reach for last summer’s high of $21 – or better – before the end of 2017.
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