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Expect Double-Digit Losses in Silver by the End of 2016

By Dr. Steve Sjuggerud
Tuesday, July 26, 2016

The price of silver is going crazy...
 
The metal jumped 35% in the first half of 2016. It soared 17% in June alone.
 
The trend is certainly up in this precious metal. But things could be getting out of hand right now, according to history.
 
That means we could see losses – not gains – through the end of the year. And a fall of 10% is possible, starting now.
 
Let me explain...
 
After years of declines, investors are in love with precious metals once again.
 
Silver is no exception. Based on the Commitment of Traders (COT) Report – a weekly report that shows the real-money bets of futures traders – bullish bets on silver are at their highest level in history.
 
Not even in 2011, when silver prices nearly hit $50 an ounce, were futures traders more bullish than they are today.
 
This is not a good sign. It shows that the "buy silver" trade is getting crowded today.
 
Typically, when sentiment reaches an extreme like this, the opposite happens over the next three months or so.
 
That's exactly what has played out in the past in silver as well...
 
You see, optimism on silver is high thanks to the precious metal's recent gains – specifically the massive 17% gain in June.
 
Now, a gain that big in just one month is rare in silver. It has only happened six other times over the last decade. And it has only happened 22 other times going all the way back to 1970.
 
Importantly, these large monthly gains tend to signal that silver is getting ahead of itself... Based on history, instead of continuing higher, the metal tends to fall. Take a look...
 
Silver Returns
1-Month
3-Month
6-Month
After Extreme Monthly Gain
-3.1%
-4.3%
-9.7%
All Periods
0.4%
1.2%
2.4%

Silver tends to fall over the six-month period following these big monthly gains. The metal's typical six-month return is 2.4%... But these extremes have led to losses of roughly 10%.
 
Based on the historical precedent, we could see a double-digit fall in silver prices by the end of the year.
 
This is a sentiment extreme. This type of extreme typically affects performance over the next one to six months.
 
Looking at the bigger picture, I believe precious metals could head much higher in the coming years.
 
I do like silver and other precious metals... But I believe you'll get a better chance to buy silver in the coming months, once today's optimism extreme wears off.
 
Good investing,
 
Steve




Further Reading:

While gold and silver steal the headlines, resource analyst Brian Weepie says that another metal – copper – is approaching "buy" territory today. Learn what he's looking for, and which companies will benefit the most, right here.
 
Unlike silver, Japanese stocks are hated today. And they're cheap. That's two of Steve's criteria for a perfect investment. Learn more about it here.

Market Notes


A NEW HIGH FOR THE 'DISAPPEARING MIDDLE CLASS'

Today, we check in on one of the biggest trends developing in the U.S...
 
With interest rates remaining near historic lows, the wealthy have been borrowing money to buy stocks, real estate, and other hard assets. Meanwhile, rising prices have squeezed lower-income wage earners, whose wages aren't keeping pace with rising prices. We call this trend the "disappearing middle class."
 
The disappearing middle class has acted as a boon for shares of certain businesses like discount retailer Dollar General, as people find ways to save on groceries and household goods. But the trend is also pushing shares of American Homes 4 Rent (AMH) higher. The company owns and rents nearly 48,000 single-family properties across 22 states.
 
As the disappearing middle class has been forced to rent rather than buy homes, AMH shares have steadily climbed higher. They're up 45% in the last six months alone, and recently hit a new 52-week high. The disappearing middle class is alive and well...
 

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