The price of silver didn’t move much early last week, but the events in Turkey have since pushed the metal even lower.
For its part, the U.S. dollar index consolidated as well, but then it rallied before exploding higher late in the week.
Serious pressure on the Turkish lira, which bled into emerging markets, acted like steroids on the dollar. Initially, silver prices sold off but quickly reversed as silver benefited from safe-haven buying, as did the dollar.
But as investors increasingly sold stocks everywhere, especially emerging markets, they favored the U.S. dollar and treasuries.
That pulled the price of silver to lows not seen since early 2016, aggravating an already tired and extended silver bear market.
Silver bulls pinned their hopes on gold, which seemed to return to safe-haven status even as the DXY surged higher. But that too has since faded with gold, making a new low near $1,200.
Here’s a look at how silver prices are trending now – and whether we’ve finally reached a bottom for the precious metal…
Here’s Why the Price of Silver Keeps Dropping
Like I said, silver saw little action early last week as both the dollar and gold moved within a pretty steady range. Silver’s lower limit was $15.30, touched early Wednesday, and its upper limit was $15.49 on Thursday morning.
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Then as Friday morning rolled around and investors around the world began reacting to news that European banks were concerned about their exposure to Turkey, the silver price initially dropped from $15.42 on Thursday’s close to $15.32. But buyers then stepped in to acquire silver as gold and the dollar also rose. That bid silver up to a peak of $15.42 before it retreated once again.
Here’s a look at the DXY for the past five trading days:
Friday’s close would see silver dragged down to $15.23 as participants sold before the weekend.
And on Monday, as stocks eventually sold off on further emerging market contagion concerns, the DXY consolidated around 96.4. That hurt silver even more, pushing the metal below $15 to $14.95 by late afternoon.
Now that silver is trading below $15, here’s where I think the precious metal is headed next…
What’s Next for the Price of Silver in 2018
If we’re looking for an explanation as to why silver has sold off, the chart above showing the rally in the U.S. dollar is it.
Although silver and gold initially jumped along with the dollar, they finally sold off as participants showed their preference for the greenback and treasuries.
What’s worth noting now is, thanks to the massive jump in the DXY, it’s nearly in overbought territory with its relative strength index (RSI) indicator near 70.
While an overbought condition can last a while, as shown by the RSI through most of May, it’s going to revert to the mean, and that could be beneficial to silver.
Silver has now dipped below its July 2017 low of $15.40.
And we have to go back all the way to April 2016 in order to match current levels around $14.98.
If silver drops further, then the next support would come in around $14.50, then $13.50.
Given its terrible recent price action, that seems all the more within the realm of possibility.
But if the metal can bottom soon and then rally, my first target would be $15.50, then $16. Remember that this sell-off has been more intense than last year’s summer blues. And those led to a rapid 16% gain in just over two months.
Meanwhile, the gold-to-silver ratio has also popped higher.
That too suggests silver has gotten cheaper relative to gold and could benefit from a correction in the ratio with silver playing catch-up.
So for now, it’s likely best to sit tight and wait a bit for silver to find its footing and bottom out. That said, silver will rally. When the uptrend returns, it could be explosive.
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