As much as last week's silver price story was all about the Federal Reserve, it seems the rate hike's boost to the U.S. dollar may be starting to fade. The greenback fell for three straight sessions last week, dropping from 97.75 on Tuesday, June 20, to 97.30 on Friday, June 23.
That doesn't mean the dollar's near-term strength is over, but as I also pointed out in my last gold update, the dollar's upside could be limited.
New York Fed President William Dudley admitted just days ago that U.S. inflation was low. It reached 1.9% in May, below market expectations of 2% and below April's 2.2%. Despite lower-than-expected inflation, Dudley indicated the Fed could plan to keep steadily hiking rates. In turn, the dollar could weaken, supporting silver prices in 2017.
Like gold, silver last peaked at $17.71 on June 6, just as the dollar was bottoming. But the metal's action over this past week is starting to look like it has also bottomed out. This has me thinking the price of silver has much more room to run higher this year. In fact, it could gain as much as 33% by the end of 2017.
We'll delve into my bullish silver price prediction and the metal's technical indicators, but first let's dig into last week's price action...
Silver Price Posts a Late-Week Rebound Thanks to Dollar Weakness
After closing at $16.66 on Friday, June 16, silver prices opened lower on Monday, June 19, at $16.63. It fell almost nonstop throughout the day to settle at $16.48 for a 1.1% loss.
That led to an overnight bounce, but it was transitory. Silver opened on Tuesday at $16.51, then fell sharply to $16.34 during morning trading. Although the U.S. Dollar Index (DXY) peaked at 97.84 on Tuesday afternoon, the price of silver recuperated somewhat to close just 0.2% lower at $16.44.
This is how the dollar has trended over the last five trading sessions...
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Wednesday was a mostly flat session for silver. It opened at $16.41 and traded sideways to close at $16.43. That marked a small 0.1% loss on the day.
On Thursday, June 22, silver soared overnight and into the open to start the day at $16.53. Despite the mild downward bias throughout the session, it managed to settle 0.5% higher at $16.52.
Silver prices opened higher on Friday at $16.74. Although they drifted slowly lower through the day, they closed 0.8% higher at $16.65. That gave silver a slight weekly decline of 0.1%.
And the metal is starting off this week with more weakness. The silver price today (Monday, June 26) is down 0.6% and trading at $16.54. These losses come despite mostly flat movement in the DXY.
Although the recent silver price volatility has been frustrating, I think the recent lows represent a great buying opportunity for investors looking to jump into the silver market. That's because I think silver could rebound as much as 33% through the end of Q4 2017.
Here's why I'm so bullish on the price of silver this year...
Why Silver Prices Could Rise 33% by the End of 2017
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If we look at a recent silver price chart, you can see from the red bars below the price line that selling intensified over the past week...
You also see that silver turned higher on Thursday and Friday, as we discussed above. This is confirmed by the RSI indicator but has yet to be reflected in the MACD. If the recent low around $16.35 holds, silver could have managed a bullish "higher low" than in May.
If the dollar tops out soon, it would likely help push silver higher. If the silver price happens to drop to $16, it would make sense to become an aggressive buyer so you can get in at a big discount.
Now, if we look at silver over the last two years, an interesting "pennant" pattern emerges...
There is clearly some room for silver to oscillate between the narrowing green lines, but since they are getting closer the price will have to break out before long. I believe it will break out strongly to the upside.
The first target (within the pennant) is $17.70, its previous high and above both the 50-day and 200-day moving averages. That target would be a 7% rise from the current level of $16.54. From there, $18 will be in close range, and a break above that psychological level could help fuel the next leg up.
For now, I think silver's nearest term target is likely to be a 2.8% gain to $17 near its 50-day moving average. Beyond that, $22 silver is still in the cards this year, which would be a huge 33% rally from the current price.
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