Silver prices this week are rallying back after hitting a stumbling block last week, despite what Wall Street wants you to believe...
Both the U.S Dollar Index (DXY) and 10-year Treasury yield rose and created significant resistance for silver prices.
The dollar has been buoyed by a hawkish Federal Reserve, whose members commented that economic growth could accelerate faster than previously expected. That's galvanized fears of faster rate hikes and, along with growing budget deficits, pushed the 10-year Treasury yield within spitting distance of 3%.
It's traditional Wall Street wisdom that higher bond yields and a strong dollar prevent silver prices from rising.
But they've got it wrong...
In fact, I've identified an indicator that suggests silver prices in 2018 are positioned for a significant rally in the near term.
Here's a look at silver's performance over the last week and the indicator behind silver's imminent rally...
Silver Prices This Week Will Fare Better Than Last Week
On Wednesday (Feb. 21), silver opened at $16.41 and rose through the afternoon as the dollar sold off. The DXY dropped to an intraday low of 89.63 at 2:20 p.m., then began to move higher, settling around 90.10 in the late afternoon. However, the dollar's rise did little to move the price of silver, which held up to close at $16.59.
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Silver's price movement on Thursday (Feb. 22) started out much like the previous day. Silver opened at $16.47, rallying to $16.63 by 1:00 p.m. due to a weakening dollar. The DXY crossed back below 90 around 9:00 a.m., bottomed at 89.65 mid-morning, then consolidated around 89.75. Silver managed to hold up to close at $16.59.
On Friday (Feb. 23), a rally in the dollar moved the DXY towards its recent resistance level of 90, eventually consolidating near 89.9 for the day. While both the dollar the S&P 500 posted significant gains, they were unable to weigh down silver, which opened at $16.65, then backtracked until mid-afternoon, closing at $16.64.
You can see the dollar's recent gains in the chart below.
While the dollar's recent rally has stalled silver's rise in the short term, there are clear signs that the greenback's rally is losing steam.
If the DXY is unable to break through its resistance level of 90, then it's likely that it will establish a lower resistance level. If the DXY falls through its support range of 88.5, we can expect it to fall into the 85 to 86 range.
Needless to say, this kind of collapse in the dollar would act as wind in silver's sails.
However, a weak dollar isn't the most important factor in setting up silver for a rally...
This Chart Shows Silver Prices Are Heading for a Long-Term Rally
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Since silver bottomed in late 2015, the precious metal has been forming a tight price movement "wedge" - we can see it in the chart below.
As the price of silver moves in an increasingly smaller range, it's likely to break out to a new price level.
Right now, the top of that wedge is around $17.50. A clear break above that level could mean the start to a new rally.
In my view, there's serious upside bias building up, and the next move could be explosive.
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