The price of silver has been beaten down so badly lately, it's become massively oversold.
In response to a blistering dollar rally, silver has sold off to levels last seen in late 2015, when silver prices put in a major multiyear low.
That's been tough for silver bulls, who watched silver gain 5.4% in October after its September bottom.
But smart money silver hedgers are still near extreme all-time low net short positions, suggesting they believe silver to be very cheap with little downside risk from here.
Only time will tell us if they're right, but they do tend to be great at positioning for extremes.
What's more, the gold to silver ratio has just reached its highest level in 25 years.
With silver prices flirting with their post-2011 lows, the metal is cheap on a fundamental and relative basis. Odds are good we'll soon get a blazing rally that will shock the shorts into buying.
Here's exactly how the price of silver is moving this week...
How the Price of Silver Is Moving Now
With the dollar at a 16-month high, it's not a complete surprise that silver has sold off so dramatically.
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The Fed's November FOMC meeting produced a hawkish press release that drove traders to buy the dollar while selling precious metals.
The price of silver spent last week trending downward, starting at $14.70 and closing on Monday, Nov. 13 at $13.98. That meant all of its October gains evaporated in about two weeks, with the bulk of that in the latter half of last week.
The precious metal got lumped in with stocks, which suffered strong selling, especially in the last three trading days.
But it was mostly dollar strength that sent silver holders fleeing.
The DXY ran past 97 on Friday, then all the way to 97.7 by late Monday.
Here's how that price action looked:
But even with Tuesday's dip in the dollar, silver headed lower, in tune with gold as sentiment weighed heavily.
By the close of trading on Tuesday, silver had reached a low of $13.98, a level not seen since the very end of 2015.
Now, here's my forecast for silver prices looking forward...
Here's My Updated Forecast for the Price of Silver
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For all the sound and fury of the dollar's big rally, it's very possible that most if not all the bullish sentiment has been priced in as traders anticipate the likely December Fed rate hike.
Interestingly, the DXY is now at a level that has proven to be overhead resistance several times in the past.
If the dollar reverses here and heads south, it could boost silver, which has become drastically oversold.
I think silver's likely at or very close to a near-term low. But if dollar strength continues, we could be in for still more weakness.
Meanwhile, one of my favorite technical indicators is screaming "cheap silver."
The gold to silver ratio has just reached a level not seen since 1993.
This extreme strongly suggests silver could soon see big gains relative to gold, and perhaps on an absolute basis as well.
Gloom toward the base metals complex has likely affected silver thanks to its industrial applications, which account for about half its demand.
And yet silver's fundamentals suggest industrial demand should help boost its price, with strong demand likely to come from the automotive and solar industries.
So silver's brutal sell-off has to be destructive for the morale of silver bulls everywhere. But bull markets are born from the depths of bear markets.
We just might be at such a turning point right now.
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