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The silver price peaked near $18 last week. And despite backing off a bit since then, silver prices still look strong.
It seems the behavior of the U.S. dollar has been crucial in swaying silver prices in the very near term.
The U.S. Dollar Index (DXY) has strengthened over the past four trading sessions, making it difficult for the price of silver to keep pushing higher.
While moves in the dollar will continue to influence the near-term silver price, fundamentals and sentiment are going to be the medium- and long-term drivers.
And there's some interesting news I'm going to share with you today about what will drive silver prices higher over the long term.
But first, let's look at why the price of silver gave up some ground last week…
The Lackluster Week for the Silver Price
Silver prices began the last trading week on a weak note. On Monday, May 2, prices fell 1.7% to close at $17.51. Interestingly, that was also a weak day for the dollar. The DXY opened near 93 and lost about 50 basis points to end near 92.50.
But the DXY bottomed early and reversed the following session. The dollar gained 0.5% to settle at 93.06 by the end of the day.
As expected, that caused silver prices to pull back. The metal opened at $17.41 and tumbled to $17.39 for a 0.7% loss on the day.
On Wednesday, May 4, the price of silver and the dollar were both flat. While the DXY added 0.2% to 93.06, the silver price fell a slight 0.3% to close at $17.34.
But the DXY stepped higher the next day, moving up 0.5% to the higher 93 range. This pulled silver prices down 0.2% to $17.30.
On Friday, all eyes were on the jobs report. The U.S. Labor Department reported only 160,000 jobs were added in April – the weakest in seven months. Economists forecast 197,000 and Goldman Sachs Group Inc. (NYSE: GS) predicted 240,000. That pointed to slowing growth in the U.S. economy and lowered expectations that the U.S. Federal Reserve would raise rates this summer.
Normally, you'd expect a weak jobs report to weaken the dollar. However, both the DXY and silver prices pushed higher on Friday, adding 0.1% and 1.2%, respectively. Despite the late-week rally, the price of silver posted a weekly loss of 1.6%.
But we still see silver prices rising over the long term this year thanks to one fundamental market force…
One Reason Why the Silver Price Will Push Higher in 2016
Considering the fundamental picture for silver prices, it's hard to imagine a brighter outlook.
After the price of silver powered 17.2% higher in April, the Silver Institute reported supply and demand data for 2015. As a whole, silver use increased by 3.4% last year, climbing to 36,407 tonnes and establishing a new annual record for silver demand.
And investors were the biggest silver purchasers last year. They bought 9,092 tonnes of silver bullion and bars in 2015, up a dramatic 24% year over year. Jewelry demand also jumped, hitting a new record of 7,045 tonnes. That marked a 1.1% increase from 2014.
Despite this strong demand trend, supply headed south. There was a 4,040-tonne shortage of silver last year, which was far more than 2014's shortage of 2,445 tonnes.
With decreasing supply and increasing demand, the silver price is poised to see more big gains down the road.
3 More Reasons Why Silver Prices Will See Long-Term Gains… Simple supply-and-demand dynamics will boost prices in 2016. But Krauth sees three more factors sending the market on a long-term rally. Here's where we see prices heading over the next four to five years…
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.