Silver prices today (Wednesday, July 26) are off 0.4% from the one-month highs seen yesterday, but they won't stay down for long...
Silver currently trades at $16.43 an ounce, down 0.4% from yesterday's $16.50 close. That was the highest settlement since June 30, when the metal closed at $16.57, according to data from FactSet.
The silver price has been volatile in July, with the metal falling 7.2% from $16.57 on July 1 to a 15-month low of $15.37 on July 7. It has since rebounded 6.5% to today's price of $16.43.
With volatile price swings this month, our readers want to know if silver prices will keep going higher in 2017. That's why Money Morning Resource Specialist Peter Krauth - a 20-year veteran of the precious metals markets - is going to share with you his silver price prediction for the rest of the year.
And Peter says silver prices are heading higher in 2017, even though they dipped today on this news...
This Silver News Today Is Dragging Prices Down from 1-Month Highs
The primary reason for the silver price decline is the rising U.S. dollar in response to today's FOMC meeting. At 2 p.m., the U.S. Federal Reserve announced it will keep the federal funds rate - which is the benchmark U.S. interest rate - unchanged in the 1%-1.25% range established in June. Leading up the announcement, the U.S. Dollar Index (DXY) climbed 15 basis points from 94.08 at market open to a peak of 94.23.
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Despite rates staying unchanged today, the big topic around the meeting was the current annual inflation rate of 1.7%. That's below the Fed's 2% target, indicating the economy's growth may be slowing down more than the Fed anticipated.
In fact, the inflation rate has been trending downward this year, falling below the Fed's 2% target, as you can see in the chart below...
Since inflation measures the rise in prices across the entire economy, lower inflation means people are buying fewer goods and services. In turn, this forces prices lower to match the lower demand.
The falling inflation rate is a signal the Fed doesn't want to raise rates right now.
But even though today's FOMC meeting ended without a rate hike, the price of silver has been known to make knee-jerk declines on the second day of FOMC meetings anyway. When the first meeting of 2017 ended on Feb. 1, the silver price dropped 0.5% from $17.54 to $17.45 on the day. At the end of the May FOMC meeting on May 3, the metal lost 1.7% from $16.83 to $16.55.
These declines could be the result of jittery silver investors who may sell their positions on fears of an unexpected spike in the dollar after a Fed rate hike announcement. After all, silver prices tend to decrease when the dollar rises in value since the metal is globally priced in the dollar. That means a rise in the dollar makes silver more expensive to users of other currencies, thus reducing international silver demand and lowering prices.
But Peter believes this bearish behavior is only short term. He actually sees today's 0.4% dip as a buying opportunity before silver prices rally to his bold price target.
And despite any day-to-day volatility for silver the rest of the year, investors who hold the metal through the year could be rewarded with double-digit returns.
"Though there may be possible short-term price pullbacks based on dollar fluctuations, I think the silver price has plenty more room to run in the second half of 2017," Peter told Money Morning readers this week.
Here's Peter's bold and bullish silver price target - as well as the biggest reason he sees it getting there...
Why Silver Prices Are Going Up Double Digits in 2017
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Peter believes the price of silver could hit the $18.50 mark "within just a few months," which would be a 12.6% gain from today's price of $16.43. Beyond that, silver could even reach as high as $22 in 2017 - a 33.9% return from today's price.
And he says this upcoming silver price rally will be thanks to "short covering" from traders...
Short covering is when traders have to buy back the same amount of silver they initially shorted. Since short sellers hope silver prices fall, they borrow silver to sell on the market, then buy it back at a lower price for a profit (or a higher price for a loss).
For example, let's say you shorted 100 ounces of silver when one ounce cost $15. If the price of silver falls to $10 per ounce, you buy back the same number of ounces - in this case, 100 - to cover your short position of 100 ounces. That short covering yields you a profit of $500, or a $5 profit for each ounce shorted.
In other words, short covering is the final stage of the short sale in which you buy back the borrowed ounces.
Peter says the 6.5% rebound in the silver price since the July 7 price floor indicates short sellers have been taking their profits and that buying behavior from the short covering has lifted prices.
This is bullish for silver prices the rest of the year because it shows a shift in sentiment from bearish to bullish...
From the week ending June 16 to July 11, silver shorts increased by 219 million ounces to an all-time high of 470 million ounces. Even though there were a record number of bearish short sellers between June and July, these short sellers have to repurchase 470 million ounces of silver to close their positions. Since short sellers already started taking their profits since silver's July 7 low, silver prices are poised to head even higher now.
The Bottom Line: After closing at their highest level since June 30 yesterday, silver prices are back down today, trading 0.4% lower at $16.43. Today's decline comes as the Fed announced that interest rates will remain unchanged in the 1%-1.25% range. But despite day-to-day volatility, Peter sees the price of silver climbing as much as 33.9% to $22 by the end of Q4 2017. One reason for the rally will be increased short covering from traders, which has likely been responsible for the 6.5% rebound from the July 7 low. Increasing short covering indicates the number of silver shorts will keep falling from their current record high. This will inevitably lead to increased bullish sentiment for long-term silver prices.
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