Over the last several days, the blog ran a sentiment poll, asking you guys where you thought Silver would trade by years end. Looking at the response, we had almost 80 votes which is not a bad for such a short term notice. A slight majority of traders and investors (57%) who read this blog, are bearish and think Silver will decline below $26 over the coming trading sessions; while a slight minority of 43% think Silver will rise above $36.
The poll was conducted while the price of Silver was relatively quite to its recent history, therefore the survey is quite fair. We started the poll last week on Wednesday, as Silver traded around $31.80. Today, one week later, it still trades at $31.80 in a small pennant as it tries to make the next decision (chart below).
Furthermore, it is worth saying that despite two major crashes of around 35% and a large amount of negativity towards the world economy and commodities, Silver is still up for the year at a net gain of 2.8%. On top of that, Silver is still up 12.7% over the last 52 weeks. Both of those figures are quite remarkable if you look at the recently volatility and downside movements. Keeping that mind, it is also worth saying that Silver is currently down about 37% from its recent peak in late April / early May of this year.
An interesting thing about Silver price right now is its mimicking Euro's movement almost identically. Consider that since middle February 2011, both Silver and Euro moved into the early May peak, followed by a strong sell off. They both experienced a July rally, followed by a panic sell off in September. From the early October bottoms, both of them rallied into late October only to fall back and re-test those lows in late November again. Correlation coefficient between these two assets is as high as 85% positive in the last 20 trading days and as high as 80% positive in the last 260 trading days (one year). That means Silver is moving opposite to the US Dollar, which is currently gaining traction due to the on going Eurozone Crisis problems and the constant need of EU banks to fund themselves in Dollars.
Silver's sentiment is extremely negative when we look at variety of published survey's. As a matter of fact, the negative sentiment readings have remained at current levels of a large amount of time. Positioning in the Futures COT market is also extremely bearish, which is associated with previous bottoms. Precious Metal inflows have slowed in recent weeks, but we do not yet see any major outflows - like we did during September of this year. All in all, there are plenty of signs that sentiment is very negative, so the current Poll results on the blog do not surprise me. We are either approaching a bottom in the coming sell off or we could be looking at one already right here.
On the closing price basis, the Lehman Brothers panic sent Silver down over 57% in 170 trading days. That was quite a bear market compared to other major corrections which occurred in 2004 and 2006. While the price fall was quite harsh in 04 and 06 (30% plus drop), the time it took to bottom out was only a month or so. Currently, this is the second worst oversold reading Silver has registered since it began its secular bull market rise in 2001. And when I say that, I mean a very oversold condition both in time and price. When we overlap the two analogues, they seem to be following each other quite well. Silver counties to sit above $30 support and has not moved up or down too much recently. The question now is, have we already bottomed or will the price follow the 2008 analogue into one last sell off crash?
I think the answer is connected to the US Dollar's next major movement. If the greenback continues to go higher through its resistance (chart above), due to on going Eurozone Debt Crisis problems and lack of Dollar funding, as showed by previous Credit posts on the blog, that will obviously push the Euro lower with the chance of Silver following down the same trajectory too. When it comes to Precious Metals and many other commodities, all eyes should be on the Euro Dollar exchange rate. The line in the sand is about 80 on the USD Index and about $1.31 on the EUR/USD exchange rate. Breach of these important levels could decide the faith of Silver's next movement.