The One Thing Keeping Silver Prices Down

While long-term sentiment on silver is bullish, short-term retail activity is failing to signal an imminent turnaround in the metal.

silver bars

Although silver has maintained relative strength versus gold and appears to be in the process of establishing a bottom, the white metal remains below its key (25- and 50-day) moving averages.

Unfortunately, this bottoming process is being accompanied by overenthusiastic retail investor sentiment, which is concerning from a contrarian perspective. Notably, bullish retail sentiment may be depressing short interest and preventing the possibility that a bull raid and accompanying short squeeze could drive the price significantly higher in the near term.

Another near-term concern is in the physical bullion market, where a growing number of Reddit-inspired small investors are snapping up bullion coins in the hopes of galvanizing a massive short-covering event.

The basis of the movement is a Reddit community called Wall Street Silver, and its members call themselves “silver stackers,” or “apes”—an insider reference to the movie Planet of the Apes.

Who are the Silver Stackers?
Many within this community believe that by purchasing as many bars and coins as they can, they can collectively run up silver prices by 100% or even 1,000%, “to the point where they can call the shots against the so-called bullion banks, the large financial institutions which lead trade in precious metals,” in the words of a recent Reuters article.

How much of an impact these Reddit community members are having on physical bullion supply is certainly questionable. But I don’t like seeing this much bullish retail trader sentiment for silver in a time in which the U.S. dollar (in which silver is priced) has been strengthening.

Ideally, traders should become more bearish as prices fall, not the other way around.

While there are times when even the retail crowd can end up correctly buying near a market low, in most cases, when the crowd starts buying physical silver hand-over-fist like the silver stackers have, they’re usually premature in their optimism. For this reason, I am avoiding making any buy recommendations in the silver ETFs right now in my Sector Xpress Gold & Metals Advisor newsletter until we see definite technical evidence that the market has been fully cleared of selling pressure and is ripe for another extended rally.

At any rate, we’ll know the bottom is in for the latest internal correction when the silver price surges above its key moving averages, as mentioned earlier.

Silver Chart

Fundamentally, however, nothing has changed to alter silver’s positive longer-term outlook. Indeed, a growing number of industry experts believe silver could go as high as $50 in the year ahead if the White House’s renewable energy plan is fully implemented. This would have the effect of increasing silver demand for use in electric vehicles (EV), solar panels and other alt-energy applications in which the metal is widely utilized.

Additional anticipated uses for silver in the foreseeable future include the continued 5G wireless network rollout. For these reasons, I expect that silver’s recent woes will prove to be but a temporary setback in the face of a bull market that should be able to regain traction at some point in the coming months.

Be on the Lookout for a Silver Rebound
My observation is that purely emotion-driven price declines are reversed fairly quickly. So, if I’m correct that June’s silver market slam was primarily a news-driven event courtesy of the silver stackers (and not fundamental in nature), then we should see silver hitting bottom in the near future. Assuming this happens, we could soon have another trading opportunity in silver.

If and when that happens, I will recommend the best silver stocks and ETFs to buy to play the rebound in my Sector Xpress Gold & Metals Advisor newsletter, where I already have a portfolio full of other precious metals investing plays.

Do you own any silver stocks or ETFs in your portfolio? Tell us about them in the comments below!

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