The world’s political pundits and financial markets all gasped when the much-awaited Brexit vote came down on the side of leaving the EU. While many markets dipped significantly, both gold and silver saw solid advances, reaching their highest price points in nearly two years. 1
In fact, silver outpaced its yellow sister in its increase, with prospects of hitting a three-year high. With seven straight sessions of advances, a brief dip on Thursday to $20.20, and a bounce back to $20.30 at Friday’s close, many are predicting that the very optimistic $20 predictions for 2016 are now too conservative. 2 There are a wide range of bullish expectations 3 now being developed under different scenarios.
With some predictions now speculating on a yearend price of $32 an ounce, it is worth looking at the factors driving the new momentum behind silver spot prices.
Brexit: Market Driver, the First of Many Last Straws
Now that the financial markets have taken a breath, it is generally recognized that the Brexit vote is more an excuse for what is happening rather than a primary justification. Specifically, the actual ramifications of the pending departure of Great Britain from the trade organization are still far in the future.
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However, this leak in the dam of global financial stability is only the most visible and immediate factor driving new respect for and buying of silver. Having gotten the attention of traders, the silver market is standing up to some very bullish scrutiny. Long-term investors in silver have weighed these factors for some time, and shorter-term traders are now evaluating their reasoning.
The underlying market drivers for silver include:
- Global economies fueled by fiat money. It cannot be repeated often enough: Central banks covering massive deficit spending and growing levels of historical debt is simply not sustainable. Precious metals have served as a backstop for government spending for centuries, and the experiments of the past century with monetary policy are going awry in country after country. The Greek “Grexit” was simply a foreshock of the seismic shift represented by Brexit, with many analysts fearing the aftershocks to come.
- Silver started this year off as a real bargain based on historical ratios and trends. According to the coordinator of FX and precious metals strategy for ABN AMRO Georgette Boele, the closely watched gold-silver ratio will fall back to 60, driving a significant rally of silver spot prices relative to gold. She adds, “(these factors)… made silver a relatively cheap precious metal at the start of this year.” 4
- The inexorable force of supply and demand is underlying much of the strength in silver buying. On the demand side, the white metal has a great many more industrial applications than gold, especially in the rapidly rising market for photovoltaics, a form of green energy. Importantly, a rise in the price of silver will not affect its role in the vast majority of these industrial and technology uses. The same increase in demand is found in other areas, with the U.S. Treasury reporting a 40 percent year-to-year rise through June.
- The supply side indicators are equally bullish. With the world consuming more silver than production provided for decades, sources for scrap and recycling have largely dried up at today’s silver prices. 5
The list goes on and the serious investors in silver are now being joined by droves of shorter-term traders who understand the market has underpriced silver for quite some time.
2 – http://www.marketwatch.com/story/forget-gold-silver-is-on-fire-and-could-hit-25oz-by-the-end-of-2016-2016-07-06
3 – http://investingnews.com/daily/resource-investing/precious-metals-investing/silver-investing/silver-price-may-enter-a-bull-run-in-2016/
4 – http://www.forbes.com/sites/kitconews/2016/04/20/is-silvers-11-month-high-just-the-start/#223ea8ac431c
5 – http://www.silverinstitute.org/site/silver-in-industry/catalysts/