Since peaking just above $16 in late January, the price of silver has moved into consolidation mode.
In fact, in last week’s update, I told you not to be surprised about any pullback going forward.
So far it’s been a pretty mild correction in silver prices, which have dropped from a $16.07 peak to their current level near $15.65.
Still, the precious metal is up 12% since November and has held up well despite recent strength in the U.S. dollar.
That suggests both silver and the dollar are being bought as a safe haven against geopolitical uncertainty, anticipated inflation, or both.
The price of silver and the dollar tend to move in opposite directions, but there are exceptions. Here’s how similar situations have played out before – and what to expect next from silver prices in 2019…
Here’s Why the Price of Silver Is Consolidating This Week
The silver price spent the first part of last week in a weakness mode as the dollar climbed steadily.
That took silver from $15.90 on Tuesday morning all the way down to $15.65 by early Thursday.
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Meanwhile, the dollar continued to climb as investors and traders alike sought it out as a safe haven.
As Thursday progressed, silver bounced back, closing at $15.74. And the metal was then able to follow through on Friday, closing at $15.82.
But Monday’s action in the DXY pulled the index back above 97, a level it hasn’t seen since late December. That did weigh on silver prices, but they managed to consolidate sideways with the metal closing at $15.68.
Now, here’s where I see the price of silver heading next…
What’s Next for the Price of Silver in 2019
With the dollar index back above 97, we need to be prepared for the possibility that it could maintain its range between 95 and 97.5, where it’s mostly been since October.
That’s exactly when the major stock indexes started to head south, which is no coincidence.
But that doesn’t mean silver has to be weak just because the dollar stays strong. It’s true they tend to move opposite each other, but that’s not always the case.
In the above chart, I’ve shown in yellow extended periods when the dollar rose. And yet silver gained 42% from the start of 2005 into early 2006.
Then, from early 2008 until early 2010, the DXY was up 21%. During that time, silver gained about 9%.
But consider that in both instances, silver went on to rise much, much more as the dollar’s rally ended.
Since late last September, the DXY is up 3.5% while silver has gained 12%. So the point is we could be in one such period now, when both the dollar and silver rise simultaneously.
If we look at silver by itself, we see that it’s back at the same price as when we started 2018.
The relative strength index and moving average convergence divergence certainly point to downward momentum for the metal.
Even if silver moves sideways for a while, its 50-day moving average appears set to cross above its 200-day moving average. That “golden cross” won’t go unnoticed, and it could trigger some technical buying, possibly pushing silver higher, or at least providing some support.
Let’s have a look at my recent silver recommendations.
The SLV January 2021 calls with a strike price of $15 are off a slight 2.2% since recommended. Given their long term to expiration, they remain a buy on dips.
The 2x leveraged ProShares Ultra Silver ETF (NYSE: AGQ) has reversed slightly and is now up just 1%, so it too remains a buy on dips.
The Global X Silver Miners ETF (NYSE: SIL) has also backed off a bit but is still up 4.6% since I said to buy. SIL is a buy on dips.
Overall, silver appears to have entered consolidation mode, which I said to expect last week. Now we have to wait and watch to see just how long (or not) and how deep (or not) this correction ends up being.
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