Money Morning: Why Silver Prices Are Set for a Breakout as the Dollar Falls

Article by Peter Krauth on Money Morning

Over the last month, gold prices have surged, tacking on over 3% in just the last two weeks.

And it looks like silver prices are next.

You see, I believe we're entering a sweet spot for the price of silver over the next few months.

Market turmoil and a weaker U.S. dollar are setting the stage for a significant rally in the precious metal – one that will shrink the gold-to-silver ratio and make silver holders a killing in the process.

As silver plays catch-up with gold, the metal's near-term outlook is looking increasingly bullish…

A Weak Dollar Is Setting the Stage for Silver's Rally

Last week, silver struggled as the U.S. Dollar Index (DXY) rallied to a new recent high of 96.14. That was simply too much headwind for silver prices, which caved to the pressure and sold down to $14.24 on Tuesday (Oct. 9).

Wednesday (Oct. 10) was rough on stocks, with the S&P 500 dropping 95 points (3.3%) and the Dow losing 830 points (3.15%), while the 10-year Treasury rose to a record 3.22% yield.

Silver dropped along with the stock market to $14.22 by mid-morning before recovering right before the close to $14.28.

Thursday (Oct. 11) generated the real action for the precious metal as the Dollar fell, testing the 95 support level. The S&P 500 fell to 2,710 before recuperating to close at 2,728.

Uncertainty in the dollar and institutional stocks was enough to boost sliver prices, pushing them to $14.56 by close.

You can see the dollar's rapid decline in this chart…

Silver managed to hang onto its gains for most of Friday (Oct. 12), closing at $14.58.

With the dollar continuing to weaken on Monday (Oct. 15), silver continued to gain, jumping to $14.67 by close.

With international pressures continuing to drag the dollar south, I think this trend is likely to continue. And it could send prices higher than Wall Street is expecting…

Here's How High Silver Prices Are Heading

It's clear the dollar is entering a new phase of weakness. The Dollar Index is trending downward, and both the relative strength index and moving average convergence divergence momentum indicators look like they may have topped.

Just look at the dollar's decline in the chart below.

Late August was the last time silver closed at these levels, and that's the current high-water mark. If silver can lock in a new high mark, it's certain to kick off a new rally and a string of exciting highs.

When this rally starts, I see silver heading to establishing a low support price of $15.62, where silver consolidated in late July. I think silver remains tremendously undervalued and is therefore likely to climb more quickly than gold.

For that reason, I expect the gold-to-silver ratio to quickly drop as silver delivers strong returns for investors.

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