Silver prices in 2017 gave back some of their year-to-date gains after the metal fell 2% last week. With that weekly loss and today's 1.1% decline to $17.04, the metal is now up only 6.6% since Dec. 31, 2016.
It's true that silver gave back most of last week's rally later in the week following a strong 0.9% rise from Monday through Tuesday. But looking at the silver price over the last month, we can see that it's climbed 3.9%.
Silver broke above the crucial point of $17.50 last week, a price considered to be a confluence of the 50-day and 200-day moving averages. However, we now see that it's a resistance level since the price of silver has fallen back toward the $17 level.
Relative to gold, silver is still very cheap. That relationship began correcting in silver's favor in early May, and I expect that trend to resume shortly.
I think the next expected rate hike after the FOMC meeting could well be the impetus triggering silver prices to run higher. If the Federal Reserve does raise interest rates, it would support my long-standing prediction of $22 silver by the end of the year. That would be a 29.1% gain from today's $17.04 price.
I'll explain why the Fed rate hike could be bullish for silver moving forward. First, however, let's look at what made prices drop 1.7% last week...
Price of Silver Sees a 2% Weekly Loss (June 2 - June 9)
After settling at $17.52 on Friday, June 2, silver opened higher on Monday, June 5, for a quiet day of trading. It started at $17.54 and moved mostly sideways throughout the day to close at $17.53 for a small 0.1% gain. That was the first time the metal closed above $17.50 since April 25.
Then came the action on Tuesday. Even with a flat U.S. Dollar Index (DXY), the silver price saw a solid run higher. After opening at $17.64, it gradually gained throughout the day to settle 0.9% higher at $17.68.
But on Wednesday, June 7, silver prices gave up those gains and more. An early morning surge in the DXY caused silver to sell off to $17.57 at the open. Prices popped to $17.68 but fell back down again once the dollar stabilized and moved sideways. That was enough to spook buyers, and the price of silver retreated 0.7% to close at $17.56.
This chart shows how the DXY trended last week...
The metal kept getting crushed on Thursday as sellers hit the bid and buyers were absent. Silver opened higher at $17.58, but that was before the dollar started climbing higher above the 97 level. This dragged silver lower to $17.41 by the close, marking a 0.9% loss on the day.
On Friday, June 9, selling momentum continued. Silver opened at $17.23 and fell down to $17.17 by the end of the day. With that 1.4% decline, silver prices posted a weekly loss of 2%. That selling momentum has spilled over into this week as the price of silver today is down another 1.1% to $17.04.
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Despite this four-day losing streak, I'm confident silver is poised for a big rebound after the June FOMC meeting on Tuesday and Wednesday. Although higher interest rates tend to boost the dollar, they have actually been bullish for the silver price if you examine the metal's behavior around the last two rate increases.
Here's why I believe this week's Fed meeting supports my forecast 29.1% gain to a $22 silver price by the end of 2017...
Why the Fed Rate Hike Fits into My Prediction for Silver Prices in 2017
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Although the recent sell-off has been brutal for silver owners, it's important to remember that this is normal behavior leading up to an expected rate hike. The price of silver lost 2.2% to $16.92 over the seven-day period leading up to the March 15 rate hike. It saw an even worse performance the week before the Dec. 14, 2016, rate hike, dropping 6.7% to $15.96.
The same is clearly happening right now as the anticipated rate hike this week has increased dollar buying, which has boosted the DXY and weighed on silver.
But both previous rate hikes acted as long-term catalysts for precious metals, and odds are good that will happen again this time. Silver soared 9.4% in the month after the March 15 rate hike and is still up 0.7% since then, taking into account the recent sell-off. It's up 6.8% since the increase on Dec. 14, 2016.
On the technical side, silver's been acting well, regaining its 50-day (blue line) and 200-day (red line) moving averages near the $17.50 level...
I said last week that I wouldn't be surprised to see the silver price stall here given the unrelenting 6% rise from $16.07 since May 9. Despite the recent pullback below those levels, I think it will resume its run higher before too long.
Revisiting the gold/silver ratio below, we can also see that it has risen again over the last week or so...
I expect this ratio to soon resume its downward trend, favoring more silver strength versus gold, against which it remains very cheap.
If silver catches a bid along with gold, perhaps soon on the heels of a highly possible rate hike, then look for $18.50 as the next stop. Beyond that, $22 is my target by the end of the year, representing a 29.1% return from the current level.