Silver (SLV) has underperformed despite increasing inflation and large deficits. In the short-term, silver's outlook remains murky, however Taylor Dart explains why the metal should still do well in the long-term.It’s been a volatile month thus far for the precious metals sector, with silver (SLV) taking the brunt of the selling pressure. This is quite disappointing in an inflationary environment when many investors are expecting metals prices to provide a hedge and safe haven. Fortunately, silver has recovered from its lows last Sunday; but it’s still down more than 10% year-to-date and down nearly 21% from its February highs. The good news is that we’ve seen minimal damage to the long-term picture, but that is contingent on the bulls playing defense immediately. Let’s take a closer look below:
(Source: TC2000.com)
As shown in the chart above, it’s been a volatile week and a half for silver, with the metal plunging more than 8% in a single trading session last Sunday but managing to find support at the critical $22.00/oz level. The price has since recovered, but the negative development is that prior support at $24.75/oz has been broken, and we now have new resistance at $26.35/oz. The two silver linings are that this correction has been so violent that we’ve seen what looks to be possible capitulation from the bull camp, and the monthly chart remains intact. This is evidenced by the fact that bullish sentiment for silver plunged to 12% bulls last week, with the long-term moving average dipping to 30% bulls, its lowest reading in more than two years. A low sentiment reading on this indicator does not guarantee that the bottom is in. Still, typically, we have seen important bottoms formed in this area with similar levels of despondence. So, with this trade having gone from exuberance at the time of the WSB short squeeze attempt to disgust six months later, it’s time to be open-minded about a potential bottom forming.