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Are Silver Investors Turning Bearish?

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Updated

No shine for silver

Taking a perspective from the bearish trend in the precious metals, the silver futures contract for December delivery has fallen in 11 out of the past 15 trading days. This has likely been the worst stretch of losses for silver, with the current rout being in anticipation of a lift in interest rates.

After seeing a small rise on Monday, November 16, 2015, as precious metals rose after the Paris attacks, silver once again fell on Tuesday, November 17, losing 0.36%. It closed at $14.10 per ounce.

Data compiled by Bloomberg shows that the bullish sentiment on silver is no longer prevalent, and investors are cutting their net long positions on silver-backed ETFs such as the iShares Silver Trust ETF (SLV). SLV has dropped 11.3% on a 30-day-trailing basis.

US government data show that, after silver’s being the most bullish precious metal since at least 2006, money managers have cut their bets on higher silver prices by almost 50% in the past two weeks.

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Fed effect

The sentiment on gold is similar to the sentiment on silver. In other words, the fund flows are negative. The most crucial factor affecting gold as well silver in the market is the potential impact of the Federal Reserve’s lifting interest rates above the zero mark.

Once rates rise, investors will flock to treasuries, deserting precious metals and thus pushing their prices lower. This negative sentiment already seems priced in such a forward-looking market.

Another ETFwhose price is affected by silver is the Global X Silver Miners ETF (SIL). SIL has seen a fall of 21.1% on a three-day-trailing basis. Such is the performance of the mining sector in the wake of the weakening precious metals market.

Companies in the silver mining business such as Coeur Mining (CDE), First Majestic Silver (AG), and Hecla Mining (HL) have seen substantial falls in their share prices in the wake of retreating precious metals. These three companies make up 2.7% of the VanEck Vectors Gold Miners ETF (GDX).

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