The Silver Signal You Can't Miss

As we noted yesterday, investors have been dumping silver at a rapid-fire rate lately, with some attributing the abandonment to the rise of bitcoin. Whatever the motive, the latest Commitment of Traders (CoT) data shows large speculators reduced their net long exposure on silver by nearly 28,000 contracts in the week ended Dec. 5 -- the biggest one-week decline ever recorded, per Schaeffer's Quantitative Analyst Chris Prybal. Below, we take a look at how silver tends to perform after these rare signals.

Regarding CoT positions on silver, there have been just seven weekly declines of more than 20,000contracts ever, according to Prybal. The last signal of this kind happened in May 2017, and prior to that you'd have to go back to June 2015, which marked the first signal in nearly a decade.

Historically, these CoT signals have been bullish for silver futures. The malleable metal has averaged much bigger-than-usual gains across the board after a mass exodus of large speculators, with a win rate that doesn't dip below 67% at any marker up to six months out.

For instance, a month after a signal, silver was up an average of 2.68%, and higher 67% of the time. That's compared to an average anytime one-month gain of 0.9%, with 52% positive, looking at data since 2000. Three months after a CoT signal, silver was up 7.65%, on average -- more than double its average anytime gain of 2.66%. Six months out, silver futures were higher a whopping 18.33%, on average, and positive 83% of the time. That's more than triple silver's average anytime six-month return.

In conclusion, if past is prologue, silver futures could be on the upswing soon. It's also worth noting that January and February tend to be the best months of the year for silver, with theiShares Silver Trust (SLV) averaging monthly gains of 5.3% and 5.1%, respectively, since inception. At last check, the front-month silver contract was fractionally higher at $15.89 per ounce, off recent five-month lows as dollar-denominated commodities move higher following yesterday's Fed rate hike.