Silver Prices May Level Off - but Will Stay Strong in Coming Months

Silver prices got a slight bump this week, as traders continue to feed into the momentum of precious metal investments generated by fear of earlier-than-expected interest rate hikes. Silver prices are up about 1.3% on the week to $21.13 as of 12:17 p.m. today (Friday).

This week's climb is not as dramatic an increase as last week when the specter of rising interest rates hung above investors following the U.S. Federal Reserve's FOMC meeting. Silver was up 6.1% last week and volume picked up as well because of the Fed.

Silver prices today

A lot of the trading this week is investors looking to pile up on last week's surge, Richard Checkan, president and chief operating officer of Asset Strategies International in Rockville, Md., told Money Morning.

Silver Recovers from Bearish Precious Metals Market

This month silver has performed well, bringing in 12.3% returns since it bottomed out at the end of May. Silver is trading above both its 50-day moving average of $19.54, and its 200-day moving average of $20.43.

"I think silver prices have been strong because they've simply lagged for a long time, and because gold has also recently reversed and headed strongly higher," Money Morning's Resource Specialist Peter Krauth said.

Silver will often move with gold prices, Checkan said, because as investors move into gold for one reason or another, they will look to diversify within precious metals and silver is an obvious second choice. Because the silver market is very small compared to the gold market by volume, when investors do pour into silver, it will not only increase with gold, but outperform it.

"Once the trend is established, silver starts getting buyers, it starts to outpace gold because it's a smaller capitalized market," Checkan said. "It's like throwing a rock into a lake versus a puddle, the relative splash is much bigger in the puddle."

And that's been the case this month... Gold is up from its $1250.00 opening on June 2 only 5.4% to $1317.80 by market close yesterday (Thursday). However, when investors pull back on gold, it has the same magnified effect in reverse for silver, which explains why gold is up 9.4% on the year compared to silver's 8.6%.

The summer months are historically less active for precious metal traders, Checkan said, so the timing of this month's surge may be out of the ordinary. But the Fed comments can explain this slight aberration from historical trends.

"Summer is kind of steady to trending weaker just because people aren't paying attention," Checkan said, and he said this could be the case in the coming weeks.

And as it stands, silver may be a little overvalued, prompting some to sell off.

"We could see a bit more strength, but I wouldn't be surprised to see a bit of profit-taking as the price may have gotten temporarily ahead of itself," Krauth said.

While both Krauth and Checkan said they could see silver trading slow down, they also see potential upside in the coming months. Krauth said after some traders move from silver, "we could well see continued strength."

Krauth said the next target for silver will be $22.50, and it could be picking up in the months to come. It could even take out the February highs, when silver prices hit $22.18 before closing at $22.05 on Feb. 24.

More on Precious Metals Investing: Money Morning recently detailed for our Members the importance of owning gold now - and delivered a two-part "cheat sheet" that outlines the right amount of gold for your portfolio. You can get that gold investing guide - for free - here.