Gold & Silver Tumble: Largest Single Day Sentiment Reset In History For Silver
We just witnessed the largest single day sentiment reset in precious metals in many years, possibly ever.
The global social media platform X was ablaze in a silver frenzy during the post-Christmas weekend. FinTwit luminaries such as Luke Gromen and Andreas Steno Larsen were seen getting into a food fight over how many ounces of silver are used in a Tomahawk cruise missile.
Others argued over whether silver would reach $100/oz on this move, and yet others asserted that silver would quickly fall back below $50/oz as the current rally was nothing more than a leverage-fueled bubble during thin holiday trading.
The anticipation for the Sunday night futures open was palpable and junior mining speculators couldn’t wait for Monday morning to arrive so their silver juniors could bask in the warm glow of $80+ silver.
However, it was not to be.
Shortly after the Sunday night open, silver futures peaked at $82.67/oz and proceeded to sell-off sharply. What ensued was a Monday trading session beatdown for the history books; silver fell 9% from Friday’s close, and a terrific -15% from the Sunday night futures peak.
Silver Futures (Hourly)
Despite the news wire assertions that it is “thin, illiquid holiday trading”, the reality is actually the complete opposite. Liquidity in silver futures and ETFs has never been greater, and the trading spreads are anything but thin.
In fact, the SLV silver ETF just posted a record for total dollar trading volume in consecutive trading sessions:
SLV (Daily)
Besides the incredible volatility in gold and silver during Sunday/Monday trading, what stood out the most to me were the HUGE drops in the Daily Sentiment Index (DSI) numbers for gold and silver: silver fell from 86 to 55, and gold fell from 83 to 55.
I have watched the DSI numbers for more than a decade and I cannot recall silver shedding 30+ sentiment points in a single trading session. In fact, after a review of the data I cannot find another recorded example of a 30+ DSI point drop in silver in a single day. This tells me this is a market that is at an emotional extreme, in desperate need of calming and cooling off.
Meanwhile, while gold also experienced enormous volatility and a large sentiment reset, its chart structure is substantially ‘less parabolic’ than silver:
Gold (Daily)
A further retracement down to the $4200-$4250 zone in gold would be natural, and quite healthy. I could also envision gold simply trading sideways for a few days, and then making another push back above $4500/oz.
As far as silver is concerned, the most bullish thing that could happen over the next few days is for volatility to dissipate, and for silver to ‘get its name out of the papers’. The calmer it gets, the more bullish it is.
“People should like something less when its price rises, but in investing they often like it more.” ~ Howard Marks
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