We’ve seen a strong start to April for precious metals, with the price of silver up over 3% to start the month and gold up more than 2% after a sharp decline in Q1. This recent strength in the price of silver to continue outperforming gold on an intermediate-term basis and sentiment has finally begun to cool off, with the long-term sentiment moving average dropping to 60% bulls from 79% in early February. While this reading is nowhere near a buy signal, it is a major step in the right direction, given that it’s dropped enough to take silver from a crowded trade to a more neutral trade. Let’s take a closer look below:
(Source: Daily Sentiment Index Data, Author’s Chart)
As shown in the chart below, silver came dangerously close to a short-term sell signal in early February, with the WallStreetBets crowd jumping on the trade. This enthusiasm sent bullish sentiment above 85% bulls for several days and pushed the long-term sentiment moving average to 79% bulls, just outside the danger zone. Fortunately, silver has pulled back over 20% from its February highs. This has allowed the sentiment moving average to drop 2000 basis points to 60%, with some of the higher January readings being rolled off. Even better, sentiment fell below 30% bulls last week, with the metal touching the $24.00/oz level, which suggested the first sign of fear on a short-term basis.
While sentiment readings are nowhere near a perfect indicator, they help dictate how far a market might be able to go in its current rally or decline. As of early February, the upside looked very limited short-term because when nearly everyone is bullish, it’s hard to find new buyers. So, this dip to 30% bulls short-term and 60% has reset sentiment at least partially and has given the metal room to rally to $29.00/oz to $32.00/oz if it can regain its upside momentum. In terms of the best ways to get leverage on the price of silver, GoGold Resources (GLGDF) looks like a solid bet on any dips below US$1.90.