Silver prices are down 68% from their 2011 high. And they’re down 27% over the past year.
But one sign shows silver could be on the verge of a double-digit move higher…
You might not believe it, but there’s more investor interest in silver right now than at any time in history. And this could lead to double-digit gains in silver over the coming months.
Let me explain…
Today, we’re looking at one of our favorite sentiment gauges… But we’re looking at it in a new way.
I’m specifically talking about the Commitment of Traders (COT) report. The COT shows what real futures traders are doing with their money.
You see, when traders all agree on an outcome, the opposite usually happens. Betting against the COT when it hits an extreme level can be a profitable strategy.
We usually look at the COT for a specific group of traders… either speculators or hedgers (who work in an industry and use futures to lower business risk). But today’s sentiment extreme comes from the total number of open futures contracts in the silver market… the so-called open interest.
Just recently, open interest in silver hit its highest level in history. Take a look…
This extreme alone doesn’t make silver a buy. But what happens next could give us an opportunity…
Over the past 15 years, silver has tended to soar when open interest hits a high and then falls.
Specifically, silver has moved higher when open interest has hit a six-month high and then has fallen by 15%. Buying after that has led to hefty returns. Here are the details…
|
Silver Returns
|
| |
3 Month
|
6 Month
|
1 Year
|
|
Open Interest Extreme Buy
|
15.2%
|
19.2%
|
37.8%
|
|
All Periods
|
3.2%
|
6.6%
|
14.7%
|
This sentiment extreme led to 18 buy signals over the past 15 years. Silver soared 15.2%, on average, over the next three months… and nearly 40% over the next year.
Now, open interest is hitting all-time highs as I write. So this isn’t a “buy” yet. Open interest needs to fall 15% before this buy signal triggers.
In short, don’t be surprised to see silver prices stay low (or even fall a bit further) before this happens. But once we get our signal, this extreme could give us a great opportunity to own silver. And history shows we could see double-digit returns within just a few months. I’ll be watching it closely.
Good investing,
Brett Eversole
Source:
http://www.stansberryresearch.com/dailywealth/3049/why-silver-could-break-out-in-the-coming-months
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