Silver was down 3% in July. However, Taylor Dart believes investors should keep a bullish bias due to negative real interest rates and increasing demand from renewable energy sources.It’s been a volatile stretch for the price of silver (SLV) recently despite the gold (GLD (NYSE:GLD)) holding strong, with silver down 3% for the month of July, while gold enjoyed a 3% return. This bifurcated performance is surprising during a bull market and likely bucked many silver bulls out of their positions. This is because, as of last week’s lows, silver had dove more than 13% in barely 30 trading days, giving up all of its gains following its swing low in late March. Given the backdrop, which remains very bullish for silver with negative real rates and a demand tailwind from renewable energy, the poor price action has caused concern among investors, with this clearly showing up in recent sentiment readings. Let’s take a closer look below:
(Source: Daily Sentiment Index Data, Author’s Chart)
Since the February spike, the silver ETF (SLV) had slid over 18%, and with hopes of the metal hitting $30.00/oz before year-end drowned out by despondence, we’ve seen a massive shift in sentiment. As shown in the chart above, bullish sentiment has slid from a high of 78% in February to a low of 40% in mid-April and is now looking to re-test the 40% level if the lack of enthusiasm for the trade continues. As of last Friday, bullish sentiment remained below 30% on a short-term basis, briefly dipping to 25%, suggesting that there were three bears for every one bull in the trade. For an asset that is up more 34% in the past year and 125% since the March lows, this is a significant level of bearish sentiment. Notably, the 40% level has been an area where sentiment has reversed on three separate occasions in the past two years, with silver finding a bottom shortly after. Therefore, if this pessimism continues, we will see sentiment move to a contrarian buy signal before month-end.