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Silver price pessimism bottoming out ready for the next big rally

December 13, 2011 - 8:33pm

There is an intriguing commentary in The Daily Reckoning by Matt Badiali on silver. In particular he cites Jason Goepfert’s SentimenTrader readings for silver. This service tracks investor sentiment towards different asset classes.

Silver it becomes apparent is at the bottom of its range for pessimism:

‘The so-called “commitment of non-commercial traders” hit 10,352. That’s incredibly low. The last time sentiment numbers were that low was in August 2007. Six months later, the price of silver was 59 per cent higher. It rose from $12 per ounce to $19 per ounce.

‘I went all the way back to 2002 and found that silver sentiment bottomed near 10,000 six times… On average, the price of silver rose 33 per cent in the next six months and 54 per cent over the next year. Here’s how the silver price performed after each of the last four times silver sentiment bottomed out…’

Recent Lows in the Silver Price that Coincided With Negative Investors Sentiment


Of course this analysis conveniently forgets the stomach-churning drops in the silver price, enough to force out those investors using trading loss stops. You need to have real faith in the upside to ride out such swings. But the rewards are there.

What the extreme pessimism indicator also most likely means is that those worrying that silver has another correction to come are barking up the wrong tree. That already happened earlier this year with the near 50 per cent plunge after the April high of almost $50.

That’s not to say that a correction is not impossible from the current price, just that it may not be much of one and that the biggest danger is being out of the market when the next price surge kicks in.

ArabianMoney still thinks silver is a runaway winner in the coming crisis (click here).

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About Peter Cooper / Commentary Author

Peter Cooper is the editor and publisher of the ArabianMoney investment newsletter and the popular financial comment website www.arabianmoney.net.

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