© Reuters. Silver on pivot levels
Silver (SLV) broke the $ 22 mark and is now at its lowest level since July last year. Taylor Dart explains why the bulls need to take a stand or silver could fall to $ 20 before the end of the year. While it’s been a roller coaster ride for gold (GLD (NYSE :)), silver (SLV) has been much more volatile lately, tumbling 4% on Wednesday, closing below the crucial $ 22.00 / oz level. This key level represents a zone that the metal broke out of in July 2020 ($ 21.20 / oz to $ 22.00 / oz) and any break below the bottom of this range would be a negative move. Fortunately, the bulls are trying to defend something in this area and at the same time we are seeing sentiment move on a short-term buy signal. In the past, sentiment buy signals have resulted in strong futures returns for the metal and have typically contained further downward moves to 10% or less. This suggests that we are likely to be near a low point in silver prices or are already stuck. But even more important than the mood in the technical picture, which is at a critical point. Let’s take a closer look below:
(Source: Daily Sentiment Index Data, author’s chart)
As the graph above shows, the sharp 8-month correction for silver since February has finally forced many bulls to throw in the towel, with bullish sentiment falling from 78% in February to just 20% this week. This massive erosion of bullish sentiment suggests that only 1 in 5 investors are bullish on silver, while nearly 4 in 5 investors were bullish in the second half of the first quarter of 2021. long-term basis, since extreme pessimism usually leads to permanent troughs in the precious metal sector. The last time the mood was so bad was in September 2018, when the metal gained more than 14% over the next five months and more than 34% over the next 12 months. This was a great time to be a silver bull, but you had to go against the grain and buy when everyone else gave up on the metal. However, while sentiment is crucial to finding the path of least resistance in the precious metals markets, the technicals are just as important.
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