Why silver is shaping up for a strong move higher

Julie Brownlee, Fsp Invest, 22 Jul. 2015

Tags: silver, silver price, commodities, silver price recovery, rising silver price

Like so many commodities, silver has had it tough over the past few years.

Since 2011, the price of silver is down 68%. Over the past year alone, the price is down 27%.

But silver is looking set to turn around and the commodity could start climbing soon.

Let’s take a closer look…

Sentiment suggests that changes are afoot for silver

The Commitment of Traders (COT) report shows what futures traders are doing with their money.

Historically, when all traders appear to agree on a specific outcome, the opposite tends to happen. Going against the COT when it’s at extreme levels can be a very profitable strategy.

At the moment, there’s an increase in open interest in silver. In fact, this is at its highest ever level, Brett Eversole in Daily Wealth explains. Just look at the chart below…

Chart showing open interest in silver

This in itself isn’t a buy signal. But it suggests that buying silver in the near future could be a profitable thing to do.

When it’s time to buy silver

Looking back over the past 15 years, when open interest hits a high, the price of silver soars. Then it falls. Looking closer, when open interest hits a six month high, it falls by 15%. Buying after this fall can lead to chunky returns.

Over the last 15 years, this sentiment extreme resulted in 18 buy signals. On average, silver rose 15.2% over the next three months and almost 40% over the next year.

At the moment, open interest needs to fall 15% before this is a buy signal. This means there’s a chance the silver price will remain low or fall slightly more before this happens.

But it’s certainly worth keeping your eye on, especially if you like speculating on commodities.

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