By Myra P. Saefong
Silver has outshined its sister metal since the U.K.’s decision to leave the European Union sparked turmoil in global equities markets, and the rally could lift the white metal to a three-year high.
Gold and silver futures have reached their highest levels in about 2 years. On Wednesday, gold futures GCQ6, -0.23% settled at $1,367.10 an ounce, marking their highest finish since March 2014, while silver futures SIU6, -1.13% hit a 23-month high of $20.203 an ounce.
Silver prices are set to surpass some analysts’ $21 to $22 predictions from earlier this year and talk of $25, $27, and even $32 an ounce have emerged. Those levels would take prices to their highest since at least 2013.
Like gold, silver’s climb isn't just about Brexit, or the U.K.’s EU exit.
Most analysts agree that the vote provided the spark for the precious-metal rally, but it isn’t the genuine impetus.
Brexit is a “symptom” of the European Central Bank’s “failure to stimulate” the EU’s economy via money printing,” said Michael Armbruster, principal and co-founder at Altavest. The bull market in gold and silver is really “all about negative real interest rates, currency market volatility and failed central-bank policy world-wide.”
“Gold and silver are beholden to no central bank and that is why they are both rallying in a new bull market,” he said.
But silver’s climb is particularly impressive.
Since the Brexit vote was held on June 23, silver futures have gained more 16%, compared with a climb of around 8.2% for gold futures.
“Silver typically tracks gold prices, with bells on,” said Adrian Ash, head of research at BullionVault, in a recent email. “For every 1% move in gold over the last 40 years, silver has averaged [a move of] 1.75% both up and down.”
A big part of the reason for silver’s outsize moves is well-known: silver’s traded on a much smaller volume than gold, so it’s much more volatile and moves tend to be exaggerated.
Open interest for the most-active gold futures contract on Comex Wednesday was around 441,000, while silver’s stood at about 156,000.
“Historically, silver tends to trade with 2 or 3 times the volatility of gold, partly because it trades with much less volume day to day,” said Tyler Richey, co-editor of The 7:00’s Report.
He pointed out that after gold prices broke higher in late 2009, it “rallied just shy of 100% to the all-time highs reached in 2011, while over the same time frame, silver rallied more than 200%.”
But also, unlike gold, silver is widely used in industrial capacities and “therefore can both trade alongside gold in scenarios like the ‘risk-on/risk-off’ price action that we are experiencing right now, or with other industrials like copper HGU6, -0.33% in times of high physical demand,” Richey said.