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You think buying gold is smart, silver is shining even brighter


The world has changed drastically in the last couple of weeks and there has never been a better time to seek refuge in safe-haven assets. In last two weeks, the United Kingdom voted to leave the European Union – a historic vote that has forever changed the world as we know it. Following the “successful/unsuccessful” Brexit vote,  a sense of gloom has settled over the global economic scene as investors prepare to venture in a whole new world.

The politics behind the “Brexit” vote and post-Brexit vote aside, it is obvious that previously “unthinkable” events are starting to hold center stage in the world economic scene. UK has left the EU, Scotland might leave the UK, Northern Ireland might join the republic of Ireland, the EU might disintegrate, and Trump might become the president of the United States against all odds.

Gold is getting all the attention in the news

In a time of economic and geopolitical uncertainty, smart investors often look to gold as store of wealth. Gold has been on an impressive uptrend since the markets opened for trading this year.  Gold gained about 14.30% in the first quarter of the year to erase the 11% decline in price that it recorded in full year 2015. In the second quarter of 2016, gold gained more than 8% and the yellow metal is up almost 25% for the first half of the year.

The demand for gold tends to rise when economic turbulence and geopolitical instability appear on the horizon. Even before UK voted to leave the EU, people have started seeking out the safe-haven that gold provides. The Telegraph reported that people in the UK had become hoarders stuffing gold bars into safes in their homes. Interestingly, an increase in the demand for gold often causes its price to rise. In contrast, economic peace and stability often weaken the allure of gold.

However, Silver is getting the investments

Gold is shiny bright in the wake of the Brexit brouhaha. However, you should be smart about how you trade commodity because silver is shining even brighter than gold. To start with, gold has gained about 5% since the Brexit vote happened on June 23 to date. In contrast, Silver has gained an incredible 17% within the same period. In essence, silver has outperformed gold by more than 142% since investors started seeking refuge in precious metals in the last two weeks.

Interestingly, the sky-high increase in the demand for silver is not limited to post-Brexit fear-induced buying alone. The Wall Street Journal reports that Chinese buyers are also piling up silver investments ahead of a drop in interest rates by the national bank. Sun Yonggang, an analyst at Chaos Ternary Futures Co in Shanghai noted that “silver has been chased after by investors as Brexit raised expectations over concerted efforts by global central banks to cut interest rates further.”

One of the main reasons silver has outperformed gold is that many retail investors can afford to buy Silver but gold calls for significantly bigger financial investments.  As ounce of silver sells for about $20.52 on the spot market today. In contrast, gold trades for about $1,305 an ounce on the market now. Hence, a $10,000 investment technically buys you 487.32 ounces of silver but you can only buy 7.66 ounces of gold with the same amount. Xiao Fu, head of commodity markets strategy at BOCI Global Commodities observes that “relatively speaking, silver is cheaper. So for people who can’t afford gold look at silver.”

One other reason silver is shining brighter than gold is that silver has more practical applications than gold. Gold has practical uses as jewelry but it is somewhat too expensive for practical industrial applications. Sam Laughlin, a trader at precious metals company MKS Pamp Group noted that “the metal continues to be buoyed by its unique position as both an industrial metal in risk-on conditions and a safe-haven asset in times of uncertainty”.

A note of warning

Without much ado, it is apparent that silver is delivering a better performance than gold to investors. Nonetheless, it is worthy of note that the outperformance that silver delivers over gold can go both ways. In a bull market, silver tends to record bigger gains that gold – however, in a bear market, silver also tends to deliver bigger losses than gold. During last big crash in precious metals from November 2011 to January 2016, gold was down about 40% while Silver was down more than 70%.

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