On announcement of BREXIT, the markets panicked and this was reflected in the movements of gold prices. Initially gold prices soared and were at fresh highs of past few years. Once markets settled, gold did see some correction but then there were signs of a modest pick-up in risk appetite leading to further rise in gold prices. Once again gold was considered as a saviour in times of uncertainties and it regained its safe haven appeal with current prices at US$1,350.
But what surprised the market were the movement in prices of the white metal: Silver.
Silver jumped to the highest level since September 2014 as investors speculated central banks will need to continue support the global economy in the wake of Britain’s vote to quit the European Union. Governor Mark Carney said on Thursday the Bank of England could cut interest rates within months as it tries to shield an unstable UK economy.
The price of silver climbed 26% through the first four months of 2016. That not only beat gold prices by 7.5%, but it also bettered the Dow Jones Industrial Average and S&P 500 by 24% and 25%, respectively. Silver prices had surged to a high of $20.46 (a near two year high) and currently trading at $19.80.
Silver Price rise_RSBL SPOT Terminal
Apart from BREXIT, the Caixiin Chinese manufacturing purchasing managers index (PMI) released on Friday continued to raise concerns about China’s weaker-than-expected economic recovery with the Chinese manufacturing PMI for June read 48.6, which was below forecast of 49.1 and May’s number of 49.2. It was the index’s third monthly decline in a row and marked the steepest deterioration in manufacturing conditions since February.
Not only the above news item, but Silver’s bullish stance can be supported by the below given key points:
- Lower Gold/Silver ratio. The current ratio stands around 75 much lower than the peak of around 84 in March. Over the same time the Silver prices have gone up by nearly 11 off percent.
- Prospects for further US interest-rate increases have been wound back since the BREXIT vote. Commodity prices in US usually benefit from lower interest rates.
- Silver plays a key role in Photovoltaic (PV) cells that are being used in Solar panels. World economies around the globe are jumping on clean energy bandwagon to reduce the pollution levels and solar energy plays an important role. With an avid increase in solar energy contribution, Silver demand will increase exponentially.
- India is one of the key importers of Silver over the past few years and the demand has only been increasing in the wake of lower prices till Jan, 2016.
Silver prices still have room for further movement upwards and the current panic and fear in the markets could raise these prices further. Gold may have a room to correct till $1,280 – 1,300 in short term but the political and unknown economic conditions created by BREXIT, could raise prices further for precious metals.