Silver Sentiment Shows More Downside Possible

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While the major market averages continue their ascent into the stratosphere following a contested election, the precious metals have remained out of favor, sitting only a few percent off their recent lows. Unfortunately, a contested election has pushed out the prospects of further stimulus for the time being. This seems to be trumping seasonality, which is generally great for the precious metals starting in November. This has left silver (SLV) nearly 20% from its year-to-date highs, with the metal struggling to regain its footing. Meanwhile, despite this dismal performance short-term, the sentiment is still not showing any clear signs of capitulation yet. Let’s take a closer look below:


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Beginning with bullish sentiment for silver above, we can see that we came close to heading into the extreme pessimism zone three weeks ago, but sentiment has since turned higher, and we’re sitting at 45% bulls. This is not an ideal reading after a correction like we’ve just seen, as it suggests that bulls are eager buyers and shifting back to the bull camp after the first sign of upside momentum in the metal. Generally, I prefer to see a move into the capitulation zone when we’ve seen a 15% plus correction. The last thing I want to see is a move back above 50% until the metal has recovered a significant amount of its decline. This is precisely what we have seen in gold (GLD) in the chart below, and sentiment actually fell to lower levels despite a smaller decline.

However, when it comes to silver, the metal was much more overbought than gold, and this means that silver might need longer to digest before it can make a run at new highs above $30.00/oz.

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(Source: Daily Sentiment Index, Author’s Chart)

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(Source: Author’s Chart,

If we move over to small speculator positioning, which tells us what small traders are doing (blue bars), we can see a similar picture. While silver (grey line) has been declining and going sideways the past few weeks, speculators have been increasing their exposure, which is not ideal. The best sign for higher prices is when speculators are dumping positions while the metal is trying to bottom, or at a bare minimum, exposure is not increasing.

This is what we saw on the left side of the chart in mid-2019 as silver tried to bottom out of a correction, and…

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