Silver Price Forecast: Figuring Out the Trajectory of the Dollar

Friday, October 6, 2017

In recent days, silver has been in something of a holding pattern, apparently at the end of a recent dipping cycle. The trend this year has been to see silver rebound over the course of a few weeks. But what if we want to look at the long-term trends of this metal and try to project where silver might be headed?

To do that, we have to key in on one of the major reasons silver fluctuates: the strength of the U.S. dollar.

The Past Three Months: Why the Dollar’s Strength Matters

It’s no secret that pricing commodities in dollars means that investors are always going to watch the strength of the currency. But it’s especially important to see these effects in what amounts to “investing real-time.” Here’s the recent strength of the U.S. dollar index below:

U.S. dollar index chart

Source: MarketWatch.com

Now compare that to the performance of silver across the same approximate period, give or take a week:

Source: APMEX.com

This correlation shows just how strong the relationship is between the U.S. dollar and silver—not just gold or precious metals as a whole.

With that in mind, we have to now weigh the different factors that could affect the dollar in the coming three months and beyond:

The Latest in Federal Reserve News

To make sense of what’s going on in the economy, we have to also make sense of what’s going on at the Federal Reserve. Here are a few key points to keep in mind for the future:

  • Inflation is a topic that’s been the buzz as of late. Reuters even reports that there’s a “debate within the Federal Reserve over the outlook for U.S. inflation.” High inflation, of course, means that stable sources of wealth like gold and silver would be prudent places to keep one’s money. But the Fed’s concern seems to be that inflation isn’t high enough. President of the Chicago Fed, Charles Evans, told reporters, “it might take longer to sort out than people think.”

  • If you’re thinking long-term, pay attention to the potential candidates lining up to be the next chairperson of the Federal Reserve. As Reuters reports, President Trump has been interviewing potential replacements for Yellen, whose current term ends in early 2018.

Where Silver Goes From Here

If the Federal Reserve is concerned about underinflation, it presents some interesting challenges to silver investors. Is now the time to purchase silver and gold, knowing that inflation is low and the relative power of the dollar means that there’s a “dip” in these metals? After all, it’s always a good idea to buy low and sell high—especially if your dollar is especially powerful at the time.

But with potential rate hikes coming down the pike, there’s no telling where inflation might head. It could take a turn for the worse and exceed the Federal Reserve’s goals. It could take longer to get moving than some anticipate. Even the Chicago Fed chair appears not to know. Forecasting silver is especially hazy for the remainder of 2017, but there’s definitely room for caution on the dollar and on the stock markets.

FREE Silver Phoenix 500 Newsletter!

  • Fresh insights on the Silver market and the economy
  • Leading authors from around the world
  • FREE
  • Stay informed!!

 

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.