Volatility has been soaring as the market’s been thrashing around, with the S&P 500 down another 5% in the last five trading days.
We also know from the latest Commitment of Traders reports that money managers have been covering their short silver futures positions, especially in the wake of silver’s climb during the first half of December.
If you’ve been following me, you’re not surprised. I’ve pointed out to you before that futures traders had recently taken their most bearish stance on silver ever.
Pessimism on that level cannot last, as trends begin mean reversion. That’s likely fed recent silver price gains.
The “silver lining” is that extreme levels typically precede major rallies for silver prices. From similarly bearish lows three times going back to 1997, silver has put on major rallies. And we could well be nearing just such a point right now…
How the Price of Silver Is Trending This Week
Last week, the silver price struggled against the dollar, which had two distinct bouts of strength.
The first came on Tuesday, Dec. 11, when the DXY bottomed in early trading around 96.90, then rocketed higher to 97.50, then consolidated the rest of the day near 97.45.
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On Wednesday, the DXY sold off as investors returned to stocks with the S&P 500 soaring about 2.3% from Tuesday’s low before ending down on the day. Silver rallied to close at $14.73.
Stocks were less volatile on Thursday, but still had a negative bias, which helped the DXY regain some ground, peaking at 97.27 at mid-morning, then settling back to 97.10 by 5 p.m. Despite the dollar’s relative strength, silver maintained the previous day’s strength.
Friday’s stock market action extended losses from the previous few days. Worries about slowing economic growth were seen as the main culprit. And that got traders buying the dollar once again, pushing the DXY to 97.7 intraday before settling back to the 97.40 range. Silver sold down to $14.53.
Then on Monday, renewed dollar weakness, even as the Fed rate decision approached, was accompanied by more selling in stocks. By day’s end, the DXY was at 97.13, and the price of silver had regained to close at $14.64.
The iShares Silver Trust (SLV) was trading at $13.75 per share on Tuesday afternoon, down $0.02 (-0.15%). Year-to-date, SLV has declined -14.01%, versus a -3.25% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Money Morning.