The silver price news investors are watching today (Friday, July 7) is the metal's sharp drop to its lowest level of 2017, and we think this presents a buying opportunity for silver...
Silver prices today are down 1.3% and trading at $15.77 per ounce. The last time silver closed below that level was on Dec. 23, 2016, when it settled at $15.76. If it closes at $15.77 today, the price of silver will post a weekly decline of 4.8%.
Here's why prices are falling today and why we are bullish on the metal for the rest of 2017...
This Silver Price News Has Dragged the Metal to a 2017 Low Today
The primary factor fueling the decline in the silver price today is the consensus-beating June jobs report released this morning.
The U.S. Department of Labor reported that 222,000 new jobs were created in June, beating economists' expectations of 180,000 by 23.3%. It was the largest job gain since employers added 235,000 jobs in February.
For reference, this chart shows monthly jobs growth since January 2016...
June's pace of hiring also marked a 60.9% increase from the 138,000 jobs added in May. But the June unemployment rate jumped from a 16-year low of 4.3% in May to 4.4% in June.
Despite the unemployment rate edging higher, the strong jobs creation bolsters the chances of another U.S. Federal Reserve interest rate hike by the end of 2017.
After all, strong economic data, like increased jobs growth, could incentivize the Fed to raise interest rates from their current 1%-1.25% range.
Interest rate hikes often push silver prices down in the short term, but higher interest rates support higher silver prices over the long term. That's why we're bullish on the metal right now.
Rate hikes lift the U.S. dollar, which lowers silver demand for users of other currencies, dragging down the price of silver. This is happening today as the U.S. Dollar Index (DXY) - which measures the dollar against several other currencies like the euro - is up 32 basis points, from 95.80 to 96.12.
Trending: The Ultimate Guide for Silver and Gold Investors in 2017 - Free
But over the long term, rising interest rates can actually boost silver prices. That's why we think today's silver price decline offers investors a great opportunity to buy in at a discount. According to Money Morning Resource Specialist Peter Krauth's 2017 silver price forecast, the metal could rally as much as 39.5% to $22 by the end of 2017.
And this chart shows why rate hikes can make silver extremely profitable over the course of months and years...
Why Fed Rate Hikes Could Send the Silver Price to Our Bold Target
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So far this year, rate hikes usually cause short-term silver price volatility since they boost the dollar. The DXY surged from 96.95 to 97.47 the day after the FOMC meeting on June 15. This dragged silver 2.5% lower, to $16.72, the very same day.
But Krauth notes how the last two rate hikes have been long-term boosts for the silver price.
"Both previous rate hikes [in March and December 2016] acted as long-term catalysts for precious metals, and odds are good that will happen again this time," Peter told Money Morning readers on June 12, two days before the rate hike announcement.
"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," Krauth continued. "It's up 6.8% since the increase on Dec. 14, 2016."
It's clear that increases in the federal funds rate - which serves as the benchmark U.S. interest rate - can hand silver investors a solid return if they hold it long enough. After all, silver's safe-haven qualities against stock market downturns means the metal will bring you more profits by holding it over the long-term than by trying to time its rise and fall over the short-term.
Even more evidence of silver's long-term strength during a period of rising interest rates can be found in the 1970s, when the federal funds rate reached its highest level in modern history...
From 1970 to 1980, silver exploded 1,650% from under $2 per ounce to about $35. Those remarkable gains happened alongside a surge in interest rates, which jumped from about 8% in 1970 to a record high above 15% in 1980.
The coinciding rally between silver and the federal funds rate was most noticeable from 1978 to 1980. That was when the metal soared about 607% higher as rates jumped from roughly 5% to 15%.
Although the current 1%-1.25% interest rate range is much lower than those late-1970s levels, the Fed is committed to gradually raising the rate as the economy becomes strong enough to support it...
After the June 14 rate hike, the Fed offered a healthy economic outlook. It raised its 2017 GDP growth forecast from 2.1% to 2.2% and commented that it expects the jobs market to remain strong this year.
The Fed indicated a stronger economy supports more interest rate hikes in 2017. And higher interest rates support our silver price prediction of a 39.5% gain this year.
With the June jobs report crushing expectations by 23.3%, we're likely on track for another interest rate hike in 2017. That supports our silver price prediction of 39.5% growth to our $22 target by the end of the year.
The Bottom Line: Silver prices are down to their lowest level of 2017, thanks to today's stronger-than-expected jobs data. This strong economic report has stirred talks of a potential third rate hike later this year, which boosts the dollar and lowers silver prices. However, investors should consider this silver price news a great buying opportunity. That's because rate hike campaigns can send the price of silver higher over the long term. This supports our silver price prediction of a 39.5% gain to $22 by the end of 2017.
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