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Silver Bounces Off Important Level | The Mesh Report

Silver Bounces Off Important Level

The Gold Enthusiast December 10, 2021 Comments Off on Silver Bounces Off Important Level
Investors in silver (SLV) and the Silver Miners Index (SIL) were able to breathe a sigh of relief in October, with the metal finishing the month up 8% and looking like it may have finally bottomed. Just six weeks later, the bulls are staring down a dreaded re-test of the low, with many likely wishing they had taken some profits above $25.00/oz. The good news is that sentiment continues to be supportive of a potential bottom, prevailing sentiment continuing to be extreme pessimism. However, the bull case is contingent on the October low holding.

Many assets have responded well to high inflation readings over the past year, with the S&P-500 (SPY) being one of them, up over 20% year-to-date. The supposed inflation hedges, precious metals, have been unable to hold their ground and continue to sink year-to-date. This has certainly made the precious metals a frustrating trade, and the only good news to come of this frustration is that it’s left bullish sentiment readings near multi-year lows. As the chart below shows, sentiment has not been this bad for the precious metals sector since March 2020 (except for September 2021), and extreme pessimism often breeds major rallies. Looking back to March 2020, silver was up more than 100% in less than six months. In the most recent instance, the metal gained 18% in less than two months, but has since given up most of these gains.

There’s obviously no guarantee that history repeats itself, and I certainly wouldn’t expect anywhere near a repeat of March 2020, given that this was a major trough for the metal following a waterfall decline. However, it’s at these times when sentiment is at its worst that traders can find the most attractive entry points into the metal or into miners that are producing the metal. This is because the risk is relatively low when the metal has pulled back 15% in less than thirty days, and no one wants anything to do with the metal. The reason is that when the majority are bearish like we see above with just 20% bulls, there are few investors/traders left to sell.

Sentiment alone is not a great timing tool, but the technical picture can leave clues as to where support for the metal might come in, and the daily chart above shows a significant support level at the $21.00/oz to $22.00/oz level. This area was a prior resistance area for silver in its previous multi-year consolidation, and often after major breakouts, prior resistance will morph into new support. We can also see from the below chart that silver is just 1% away from back-testing its multi-year downtrend line, an area that is also often a major support zone. So…

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