By Alexandra Wexler
Gold may be gleaming, but silver is outshining the yellow metal. The price of silver rallied to a two-year high last week, spurred by demand from China and a global stampede to safe-harbor assets after the United Kingdom’s June 23 vote to leave the European Union.
The Brexit vote has increased expectations of further monetary easing by central banks, which means interest rates could be kept lower for longer. That makes precious metals like silver and gold attractive to investors who are concerned about general economic uncertainty and seeking a safe-harbor asset.
“The price of gold has predictably done well in the wake of the U.K.’s surprise vote to leave the EU…but the real star of the show has been silver,” research firm Capital Economics said in a July 1 note. Though silver has exceeded its current 2016 target of $19.50 a troy ounce, the firm wrote that “we continue to expect silver to outperform gold over the next couple of years.”
Silver on the Comex division of the New York Mercantile Exchange has surged 46% so far this year, far outpacing Nymex gold’s impressive 28% rally since the start of the year. Nymex silver for September delivery ended on Friday at $20.24 a troy ounce, up 3% for the week.
“Speculative financial investors are also betting on further rising gold and silver prices, net long positions in both being expanded to new record levels,” German bank Commerzbank said in a July 4 note. The bank added that silver exchange-traded funds had seen about 25% more inflows by volume than gold ETFs in June.
SILVER’S OUTPACING OF GOLD wasn’t entirely unpredictable. The former has historically followed price movements in the latter, erratically swinging to higher highs and lower lows. Though silver is used to make coins, jewelry, and ingots, about half of its consumption is industrial. The metal is used in products from electronics to solar panels to photography.
“Besides the increase in the gold price, silver has also been profiting from the broad-based strength shown by base metals,” Commerzbank said. That has been driven in part by the Chinese government’s aggressive monetary stimulus in the first three months of this year, which has buoyed the world’s second-largest economy. China is the world’s biggest consumer of many industrial metals, from copper to aluminum as well as silver. Its official purchasing managers index for manufacturing remained steady in May, the third consecutive month the index kept above 50, the line separating expansion from contraction.