Precious metal just bounced off its most pessimistic reading in four years
The big money is tiptoeing back into silver.
Last month, commodity trading advisors, pool operators, and hedge funds – the "big money" – weren't interested in silver AT ALL...
But as they move back into the market, silver prices could soar. Let me show you what I'm talking about...
Jason Goepfert created SentimenTrader, a service that tracks investor sentiment toward various asset classes. According to Jason, silver just bounced off its most pessimistic reading in four years.
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% 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% in the next six months and 54% over the next year. This chart shows the last four times it bottomed...
Here's how the silver price performed after each of the last four times silver sentiment bottomed out...
| |
Date |
Low Price |
High Price |
Period |
Return |
| Bottom No. 1 |
8/28/2007 |
$12.07 |
$20.15 |
6 Months |
67% |
| Bottom No. 2 |
10/21/2008 |
$9.36 |
$47.25 |
12 Months |
405% |
| Bottom No. 3 |
6/28/2011 |
$33.88 |
$43.26 |
2 Months |
28% |
| Bottom No. 4 |
10/18/2011 |
$31.38 |
? |
? |
? |
The best return came after Bottom No. 2, which coincided with the U.S. banking/credit crisis. Silver soared an eye-popping 405%, including its parabolic rise in 2010.
As those numbers indicate, silver is one of the most volatile assets in the world. Over the last year, silver has seen massive price swings, including an 81% rally and two 30% drops. That forced many traders to liquidate their silver holdings in order to meet emergency short-term requirements. (Plus, the debacle at commodity broker MF Global has scared many folks out of the market.)
But the long-term drivers of gold and silver's up trends are still in place. Enormous and growing Asian economies like China and India are getting richer... and they have deep cultural affinities for precious metals. Plus, the Western world has lived way beyond its means for a long time... the debts and liabilities it has taken on can only be paid back with devalued, debased money. This is bullish for "real money" assets like gold and silver.
With sentiment so negative toward silver (and just beginning to turn back up), it's a great time to take a position in this long-term bull market.
