Silver prices continue their slump from the previous week thanks to two major culprits…
The first is the U.S. dollar, and the second is sentiment.
The U.S. Dollar Index (DXY) spent most of the week powering higher, eventually reaching as high as 95.5, a level not seen in over eight months.
So the market took that to mean the Fed could stay the course on gradual rate hikes in order keep a short leash on both inflation and the risk of economic overheating.
That hurt the price of silver last week, but there’s good news ahead…
Finding bullish support for silver in mainstream media is futile, and that tells me that the weak hands have likely sold.
Of course silver will only rally when it’s good and ready, but the dollar’s recent rally may have already reversed.
And that could help the gray metal put in a near-term bottom.
Here’s what happened to silver prices last week, and what that means for my silver price prediction in 2018…
Why Silver Prices Continue to Tumble
Silver’s price action over the past week was only exacerbated by the latest bout of strength in the dollar.
U.S. President Donald Trump’s trade wars salvo helped push the DXY to 95.5 on Thursday (June 21). But that was an intraday high. Since then, the index has lost a full 100 basis points as the market comes to realize any possible benefits from tariffs are outweighed by rising input costs.
Silver began last Tuesday (June 19) down at $16.24, then bounced between $16.31 and $16.10, its lowest point early on Thursday. Around 6 a.m., the DXY peaked at 95.5, then sold off to end the day at 94.9. That helped silver put in a near-term bottom at $16.17 before powering higher to close at $16.28.
Here’s the DXY for the last five trading days, where you can see it dip on Thursday…
On Friday (June 22), the dollar lost more strength to close near 94.5, helping to support silver prices even more. The precious metal gained on the day to close at $16.42.
Monday’s (June 25) open brought silver a bit lower at $16.36, and by late morning it was trading down at $16.27 as markets took a risk-off approach thanks to renewed trade war worries.
But bottoming silver prices mean weak money has left the market. And once we get a new silver rally, the gray metal can really start to run higher.
Here’s what I see happening…
How a Bottom Can Kick Off the Next Silver Price Rally
Although the dollar’s been in a rally mode since mid-April, we could be seeing the end of that strength.
As you can see, the dollar last approached 95 in late May, and before that in November. Each time it reversed and headed lower. The DXY spent nearly all of May overbought, according to the relative strength index (RSI), but momentum was on its side.
The RSI has just made a run at 70 before reversing, suggesting momentum is waning. And this is being confirmed by the moving average convergence divergence (MACD), which has been trending lower since late May.
As for silver itself, even the recent sharp drop hasn’t crossed below the consolidating wedge pattern.
The RSI and MACD aren’t providing direction for now, so they don’t help much to provide any clues to near-term direction. For now at least, the wedge is getting narrower, so silver will have to break distinctly up or down sooner than later.
And I’m confident the wedge is acting as a near-term price bottom, with the breakout potential coming on the upside.
I’m seeing evidence of that in silver’s strength in the gold-to-silver ratio…
Despite the pullback in both gold and silver over the last week, silver has managed to maintain its strength relative to gold. So the ongoing bullish trend in the gold-to-silver ratio continues to favor higher silver, especially if gold can catch a bid.
With really decent odds of a further pullback in the U.S. dollar from here, that could propel silver, gold, and most other commodities higher. That might help silver regain $17.25 in a few weeks, with $18 just a short hop from there.
It could be a hot summer for silver.
— Peter Krauth
Source: Money Morning