Silver price pessimism bottoming out ready for the next big rally
Posted on 10 December 2011 with 2 comments from readers
There is an intriguing commentary in The Daily Reckoning by Matt Badiali on silver. In particular he cites Jason Goepfert’s SentimenTrader readings for silver. This service tracks investor sentiment towards different asset classes.
Silver it becomes apparent is at the bottom of its range for pessimism:
‘The so-called “commitment of non-commercial traders” hit 10,352. That’s incredibly low. The last time sentiment numbers were that low was in August 2007. Six months later, the price of silver was 59 per cent higher. It rose from $12 per ounce to $19 per ounce.
‘I went all the way back to 2002 and found that silver sentiment bottomed near 10,000 six times… On average, the price of silver rose 33 per cent in the next six months and 54 per cent over the next year. Here’s how the silver price performed after each of the last four times silver sentiment bottomed out…’
Of course this analysis conveniently forgets the stomach-churning drops in the silver price, enough to force out those investors using trading loss stops. You need to have real faith in the upside to ride out such swings. But the rewards are there.
What the extreme pessimism indicator also most likely means is that those worrying that silver has another correction to come are barking up the wrong tree. That already happened earlier this year with the near 50 per cent plunge after the April high of almost $50.
That’s not to say that a correction is not impossible from the current price, just that it may not be much of one and that the biggest danger is being out of the market when the next price surge kicks in.
ArabianMoney still thinks silver is a runaway winner in the coming crisis (click here).
2 Comments posted by readers:
Re silver, lots of talk this week about the Sentiment Indexes being down on silver. But silver is not leading the way, and never was. When gold breaks out, silver will slingshot. Gold is the save-your-wealth play, and silver is the commodity-speculative sister play. Even the experts on gold are flipping a coin to know which way its headed now, and what if in the context of a greater economic deflationary spiral. I bet almost none of we smaller investors who own physical silver are selling. A bet placed in PM’s is a bet against the Euro banks and sovereign’s ability to work their way out of this mess without printing. I’m increasing my PM bet.
I gotta agree with the Ed. here that, looking forward into 2012, holding physical silver is arguably the very best investment that one could have.
@James M.:
Hello, my Canadian e-friend. Gotta agree with your assessment as well. Here in the US, I don’t know of any silver investment holders who are selling. Today, the agents of the central banks (e.g. the JPM cartel) are giving us another great opportunity to buy physical. I will seize this opportunity again today!