Why the Price of Silver Could Rally Following the Midterm Elections

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The price of silver struggled in the early part of last week as the dollar gained and stocks retreated.

Silver prices gave back about 2.6% in just two days. That would be a short-term blip, with silver quickly regaining all those losses in the next two days.

October was brutal to stocks, with major indexes losing anywhere from 11% to almost 15%. By contrast, the silver price was down just 2.4%, while silver stocks gave back about 5%.

However, much of that has already been gained back for silver and silver stocks.

There’s little doubt from the action in both the dollar and precious metals that U.S. midterm elections have some sway on investors, which have sought shelter with these safe havens in the face of political uncertainty.

I think the removal of that uncertainty, to a large extent, will take some air out of the dollar, which could help silver continue to rally.

Before I show you my outlook for silver prices, here’s how prices are trending now…

Here’s How the Price of Silver Is Moving Now

After losing a little ground on Tuesday, especially as the U.S. Dollar Index (DXY) climbed from 96.7 to 97, silver closed slightly down, near $14.35 per ounce. That was actually not bad given the dollar’s strength, which pulled it to a level it hasn’t reached since July 2017.

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Wednesday’s goblins pushed the DXY to an intraday high of 97.19, and stocks rose. Both of these competed with silver prices, which sold off gradually through the day to end at $14.29. That was unlike gold, which bottomed in the morning then reversed.

Thursday would bring strong selling in the dollar, with the DXY losing about 80 basis points.  U.S. jobless claims dropped, and the ISM Manufacturing Index came in below expectations. Investors likely factored in a possible slowing in rate hikes, which dented the dollar. As a result, the price of silver jumped to close the day up at $14.65.

Here’s the DXY for the past five trading days:

dxy

 

Friday saw the DXY bottom early at 96 before rallying to 96.5 for most of the day as U.S. equities sold off. Midterm elections likely weighed on sentiment, with the 10-year yield clawing its way up to 3.2%. Silver ended flat at $14.72.

On Monday, broader equities rose while tech stocks ended in the red. The DXY was a bit softer near 96.35 and closed at $14.61.

Now that we know how silver prices have been moving, here’s where I see the price of silver heading after the midterm elections…

Where the Price of Silver Is Headed After the Midterm Elections

Recent strength is what’s most notable about dollar action.

usd chart

The U.S. Dollar Index did lose momentum after hitting 97 last week. The relative strength index and moving average convergence divergence both turned down, suggesting near-term action could see more selling. If there’s follow-through on the downside, look for the DXY to reach for 95, the 50-day moving average, initially. This should help silver rally.

Here’s the main takeaway on silver…

silver

For now, around $14.80 appears to be the ceiling to break above, as it has been overhead resistance since late August. Meanwhile, we’re seeing a series of higher lows emerge, suggesting a bullish ascending triangle pattern may be emerging.

For now, silver’s back above its 50-day moving average, which is a positive signal.

Last week, I pointed out how the gold-to-silver ratio was back at its multiyear peak of 85 – and that the odds were the ratio would reverse.

gold and silver

So far, that’s what has started to emerge, with the ratio dropping to 83.7 before a small bounce this past week.

There’s plenty of room for this ratio to fall further, with 81 as my next target before heading lower.

Silver hedgers (considered smart money), are still holding near very long-term low levels. This means they see little need to hedge silver prices as they consider them very low with little downside risk.

After $14.80, silver still has to pierce the $15 level, then $15.65 will be the next target. Even some modest short covering could get us there in a flash.

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