It has been a difficult year so far for investors in the precious metals space, and particularly disappointing for those who believe inflation will pave the way for higher prices for gold (GLD) and gold. silver (SLV). Despite high inflation figures over several years and negative real rates plunging deep into negative territory, gold and silver have been falling since the start of the year and have tested their lows since the start of the year. year in the third quarter. The only good news is that this recent correction has shaken bullish sentiment considerably and it looks like this is the capitulation the metals needed to finally shake the last of the weak hands. This is evidenced by three consecutive weak double-digit readings for bullish sentiment last week and a medium-term bullish sentiment reading that has plunged to new 2-year lows. Let’s take a closer look below:
(Source: Daily Sentiment Index data, author’s chart)
As the chart above shows, the mid-term moving average for silver sentiment has slipped to its lowest levels since early 2019, currently sitting at a reading of just 25%. This is a drastic change from six months ago, when market participants tried to incite silver to shrink, and the mid-term moving average has climbed above 75%. of bulls, with three bulls for every bearish in the market. With this reading now reversed (three bears for each bull), sentiment has finally turned to a tailwind, with further weakness likely to present a buying opportunity. This is because when bearish sentiment dominates a market, there is little left to sell or sell. Based on history, sentiment can still worsen, but for the first time in two years, sentiment for money has turned to a bullish reading.
However, the only issue to watch is the Silver / Gold ratio, which has broken its short-term uptrend and is currently below its weekly moving average. This outage is not a big deal, but it is a minor red flag, given that silver is expected to massively outperform gold if we really head into a new secular bull market for the metals space. precious. As it stands, the Silver / Gold ratio is just below its key moving average and has hit a low from its lows of last year. The key to bringing this indicator back to a bullish reading is for the Silver / Gold ratio to move back above 0.155, suggesting that we have another higher low in place for this indicator. Failure to hold on to this level, however, would make other silver rallies more suspect. So, silver investors should keep a close eye on this, and they will want to see this moving average recovered as soon as possible.
The good news is that if we take a look at the technical picture, silver has barely fallen on its long-term chart, remaining above its multi-year breakout in the recent correction. Notably, the bulls also defended a key monthly moving average (white line). As long as silver stays above $ 22.00 / oz, I see no reason to go bearish on silver, and I continue to see higher prices in the long run. In fact, the extreme pessimism in sentiment is even more encouraging as silver continues to hit higher highs and lows on a monthly basis and has not entered a bear market. That said, the silver / gold ratio is quite large, so while holding $ 22.00 / oz was the silver lining during this correction, outperforming gold would be ideal to suggest that it is not. than a violent shock.
So what’s the best course of action?
With many silver miners doing better than the metal itself on a technical basis, I continue to view this as the best way to play in the market. Indeed, names like GoGold (GLGDF) stayed above their 125-day moving average during the recent violent correction and have already reached new all-time highs, suggesting they don’t need the price of the l higher money to generate alpha. In fact, if we look at the GoGold against the silver, we can see that the performance of the stock against the silver remains in a strong uptrend, and I still prefer long uptrends against downtrends. For investors interested in the metal itself, I would view any recent test of the recent low at $ 22.25 / oz as a low risk area to start a position. However, with bullish trends in the strongest silver mines right now, I recently left my position in the silver to focus on stronger names in the industry. That said, if this extreme pessimism manifests itself as it usually does with strong 6 month futures yields, silver could easily climb back above $ 27.50 / oz over the next 6 months.
Disclosure: I am long GLD, GLGDF
Disclaimer: Taylor Dart is not a registered investment advisor or financial planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy or a recommendation regarding a securities transaction. The information contained in this document should not be interpreted as financial or investment advice on any subject. Taylor Dart expressly disclaims all liability for actions taken based on any or all of the information contained herein.
Shares of SLV were trading at $ 22.14 a share on Tuesday afternoon, up $ 0.26 (+ 1.19%). Year-to-date, the SLV has fallen -9.89%, compared to a 20.62% increase in the benchmark S&P 500 over the same period.
About the Author: Taylor Dart
Taylor has over a decade of investment experience, with a particular focus on the precious metals industry. In addition to working with ETFDailyNews, he is a leading writer on Seeking Alpha. Learn more about Taylor’s background, as well as links to his most recent articles. Following…