Money Morning: The Price of Silver Is Now Massively Oversold

Article by Peter Krauth in Money Morning

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.

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.

The Fed's November FOMC meeting produced a hawkish press release that drove traders to buy the dollar while selling precious metals. 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

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 Dollar Index 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 is likely at or very close to a near-term low. 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.

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.

To read this article in Money Morning, click here.