Silver has performed poorly so far in 2021 with an 11% loss YTD. This is despite many positive catalysts including rising inflation and dovish monetary policy. Taylor Dart explains whether it's time to buy the dip.It’s been a rough year thus far for investors in the precious metals space and especially disappointing for those believing that inflation would unlock the key to higher prices for gold (GLD (NYSE:GLD)) and silver (SLV). Despite multi-year high inflation readings and negative real rates diving deep into negative territory, gold and silver are down year-to-date and have tested their year-to-date lows in Q3. The only good news is that this recent correction has put a massive dent in bullish sentiment and looks like it may have been the capitulation the metals needed to finally shake out the last of the weak hands. This is evidenced by three consecutive low double-digit readings for bullish sentiment last week and a medium-term bullish sentiment reading that’s dipped to new 2-year lows. Let’s take a closer look below:
(Source: Daily Sentiment Index Data, Author’s Chart)
As shown in the chart above, the medium-term moving average for silver sentiment has slid to its lowest levels since early 2019, currently sitting at a reading of barely 25%. This is a massive sea change from six months ago when market participants were trying to incite a squeeze in silver, and the medium-term moving average soared above 75% bulls, with three bulls for every one bear in the market. With this reading now reversed (three bears for every one bull), sentiment has finally become a tailwind, with further weakness likely to present a buying opportunity. This is because when bearish sentiment dominates a market, there’s few left to sell or short. Based on history, sentiment can always get worse, but for the first time in two years, sentiment for silver has flipped to a contrarian bullish reading.