Promising Outlook for Silver in 2022

Written by admin

It’s been a frustrating year for investors in the precious metals space, with the price of gold (GLD) and silver (SLV) being two of the only asset classes that are negative for the year. This is especially frustrating for investors in silver than didn’t take profits into the proclaimed silver squeeze earlier this year, which sent silver prices soaring overnight, but those gains were given up almost immediately.

Despite the pathetic year-to-date return, past performance is not indicative of future performance. In fact, the metals sector typically bottoms just when the majority have finally thrown in the towel and it’s seen its worst performance in years on a trailing-1-year basis. This suggests that the bottom is likely already in for silver at $21.00/oz. Let’s take a closer look below:

Chart, histogram Description automatically generated

(Source: TC2000.com)

As the chart above shows, silver has been very volatile in 2021, trading in a range of $21.00/oz to $30.00/oz and finding itself at the bottom of this range to close out the year. Not surprisingly, this weak performance has put a major dent in bullish sentiment for silver, with sentiment dropping to a reading of 12% bulls earlier this month. This suggests that there was one market participant that was bullish for every six that were bearish in the first week of December. These extremes typically provide the conditions for durable bottoms.

A picture containing text, linedrawing, candelabrum Description automatically generated

(Source: Daily Sentiment Index Data, www.trade-futures.com, Author’s Chart)

As the chart above shows, we have only seen readings this low on three occasions in the past three years: March 2020, September 2021, and May 2019. In all these instances, silver rallied at least 15% over the following six months, with a median forward 6-month return above 25% in these three instances and its worst return coming in at 17%. Based on this recent reading of extreme pessimism occurring at $21.40/oz, this would suggest that silver could trade above $25.00/oz before May if this played out like the weakest of the past three signals and would rally above $26.50/oz if it traded in line with the median signal.

Some traders and investors would be quick to point out that there’s no need to go bottom fishing for any asset class, and I would argue that this is a very fair point. Typically, catching a falling knife in the commodity space does not play out well, and we often see commodities fall much further than expected. However…

 

Continue reading at STOCKNEWS.com

 

About the author

admin

Leave a Comment