Gold and Silver Turn Safe Haven in Choppy Market

Prices of gold and silver surge to two-year high on Brexit fallout

Britain’s vote for its exit from the European Union on June 23rd, 2016, has thrown financial markets across the world into turmoil, resulting in uncertainty in the near-term. The rising wave of market uncertainty has compelled investors to cut back on risks and invest in gold and silver as a safe haven. Gold and silver are indeed turning out to be the bright spot for investors seeking solace from volatile currencies and equities, pushing the prices of these two metals to a two-year high, as reported by Bloomberg on July 4th, 2016. Moreover, many central banks across the world are pledging more funds to resuscitate growth in the face of Brexit. The Bank of England may cut interest rates in the next few months, while the Federal Reserve is holding its decision to raise interest rates. Hence, the need to own non-yielding assets like precious metals has increased.

Source: Bloomberg
Source: Bloomberg

Gold has climbed 6.2% and silver 11% since the Brexit referendum on June 23rd, 2016, outperforming global stocks, bonds and currencies. These metals will continue to outperform and record new highs as long as market conditions remain unstable. Since the pound tumbled to a three-decade low against the dollar on July 1st, 2016, bullion has become even more valuable for U.K. investors.

Priced in sterling, silver has surged 23% since June 23rd, 2016, heading for the biggest gain over six days since at least 2000. Gold has climbed 19% denominated in pounds in the period. Silver surged above $21 for the first time in two years and gold advanced for the fourth day on speculation of more central bank stimulus in the wake of the U.K.’s vote to leave the EU. Spot silver jumped by about 7% to $21.1377 an ounce and settled at $20.3246 in New York on Monday, July 4th, 2016, according to Bloomberg. Spot gold rose as much as 1.2% to $1,357.63 an ounce, nearing a two-year high, settling at $1,350.79 on Monday, July 4th, 2016.

Source: Bloomberg
Source: Bloomberg

Assets in silver-backed exchange traded funds (ETFs) expanded to a record in June 2016. It is noteworthy that investors are now buying more silver than gold. The long-term trend in the gold-silver ratio has broken to the downside and that silver could continue to outperform gold and other precious metals in the current market environment, according to Bloomberg.

Source: Bloomberg
Source: Bloomberg

Bullion holdings in ETFs surge

Global gold holdings have expanded by more than 500 metric tons after hitting a low in January 2016, signaling rising concerns among investors about the slowing growth, implications of the Brexit vote, the Federal Reserve’s hesitation in raising borrowing costs, and the spread of negative rates in Europe and Japan.

Assets in bullion-backed ETFs rose 6.6 tons to 1,959.1 tons on Friday, July 1st, 2016, up from 1,458.1 tons on January 6th, 2016, according to Bloomberg. The holdings increased 37 tons in the last week of June 2016 as investors reacted to the U.K.’s vote, and surged in five months out of six in the first half of 2016. Gold holdings in ETFs, which peaked at 2,632.5 tons in 2012, have now rebounded to the highest since August 2013. Gold and silver-backed ETFs are traded like shares, allowing investors to buy and sell bullion and silver without actually taking physical delivery of the metals.

Source: Bloomberg
Source: Bloomberg

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