Though sentiment for silver speculators has retreated in the last few weeks, and its technical picture has improved, it doesn't have quite the same setup as gold.
Still, there are some technical indicators, as well as fundamental ones, pointing to internal strength in the silver price. Today (Tuesday, May 30), silver prices are mostly flat in morning trading, down 0.17%.
And fundamentally too, silver miners are doing pretty well. Profits have remained strong in Q1, and although you wouldn't know it from their share prices, silver miners' cash flow has remained robust.
At some point, and I suspect before long, they're simply going to have to revert to the mean and catch up.
So from that perspective, silver stocks are looking rather attractive at this juncture.
Before I get to my prediction for the price of silver moving forward, here's how the silver price has been trending...
Why the Silver Price Rallied Last Week
Silver actually had a pretty good week last week, all things considered. After a dip and quick recovery in the previous week, silver managed to grind higher.
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It started Monday morning (May 22) strong at $17 even, then just kept climbing. By 2:00 p.m., that rally had tacked on another $0.16 to bring the silver price to $17.16. That's when it began to weaken a little, eventually closing at $17.14.
Tuesday saw some of those gains given back. The metal opened at $17.11, then quickly bounced to $17.25. That's where it peaked, because the U.S. Dollar Index (DXY) bottomed, then rallied. Silver dropped to $17.06 by 1:00 p.m., then bounced and retreated to close at that same level.
Wednesday brought an early morning reversal, with silver bottoming at $16.89 at 2:00 a.m. By the open, it was back to $17.07. From there, the silver price kept climbing as the DXY weakened. By the end of the trading day, silver was back up at $17.21.
Here's a look at the U.S. Dollar Index for the last trading week.
On Thursday, the silver price action was rather quiet. It opened at $17.19 and backed off as the DXY rose. By the close, silver traded hands at $17.11.
Then Friday brought renewed strength despite a higher dollar. Silver started out at $17.25, then after a little back and forth, closed out the week at $17.31. According to Kitco, that was its highest price for the month of May.
Now that we know why the silver price rallied last week, here's what's next for the precious metal...
What to Expect from Silver Prices Now
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So let's start by looking at silver's recent price action.
We can see a strong recovery since its May low at $16.16, which came on strong buying volume. At this juncture, if silver can continue to rally, look for it to quickly reach the $17.50 to $17.70 range, which is where the 50-day and 200-day moving averages lie. And remember, these could act as resistance levels.
Once that level's been overcome, the next target will be the mid-April high of $18.50.
Looking at the gold/silver ratio, we see what may have been a recent peak around 75.5. Since then it's been heading downwards as the silver price has been playing catch-up to gold.
I expect the gold/silver ratio to continue heading downwards from historically high levels, which should mean higher silver prices.
And now let's look at the silver miners relative to the silver price, using the Global X Silver Miners exchange-traded fund (NYSE: SIL) as a proxy for the miners.
We can clearly see a wedge forming. I think we'll see the silver miners/silver ratio break higher, which should lead to an outperformance in the coming weeks and months by silver miners.
Remember too that on the fundamental side, silver miners saw their cash flow rise about 30% in Q1 over the previous quarter, thanks to production costs coming down.
Those profits are likely to keep climbing along with the silver price, and that's going to attract a lot more attention from investors.
Especially if gold keeps heading higher into mid-year, look for silver to potentially challenge the $18.50 level by then and to rally to $22 in H2.
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