While Americans were busy barbecuing and shooting fireworks on July Fourth, the precious metals market saw renewed fireworks thanks in part to Chinese investors.
Silver especially sparkledMonday, launching a 7% run higher and climbing above $21 for the first time since July 2014 before easing Tuesday near $19.88.
Silver has gained 47% at its peak in 2016 and has risen by 55% since its December 2015 lows. In contrast, gold is up about 27% for the year.
The gold-silver ratio, or the number of ounces of silver needed to buy a single ounce of gold, fell to around 64:1, its lowest level since August 2014. Thats down from the 83:1 peak reached in February.
Concerns over Brexit aftershocks continue to fuel the ascent of both gold and silver, but another factor played intoMondayssure in silver: Chinese investors.
The price of silver surged to a two-year highon Mondayas buyers in China made bold bets in the futures market and scooped up vast volumes of physical metal, The Wall Street Journalreported. On the Shanghai Futures Exchange, the most actively traded silver futures contract jumped for a fourth straight sessionon Monday, hitting its 6% daily maximum at opening to reach 4,419 yuan ($663) akilogram.
An increasing number of commodity-trading platforms in China also helped driveMondaysaction. The emergence of commodity trading venues in China has, however, changed the balance in the market, Saxo Bank analyst Ole Hansen noted. Back in April,a sudden rise in demand for steel rebar and iron ore futures from Chinese day traders triggered a major surge in daily volumes.
However, silver also is commonly viewed as a high-power play on golds movement, with the white metal often outpacing the yellow metal in percentage gains in bullish markets. And so, following the Brexit vote traders around the world, not least in China, have increasingly cast their eyes on silver, Hansennoted.
Western demand also is supporting silver. Holdings in silver-linked ETFs hit record highs in June, and coin and bar consumption remains robust. One United Kingdom bullion dealertold Bloombergthat silver buying was trumping gold purchases at his firm.
The UK demand for Silver Britannia coins is very strong, he said. Three times more than average.
And in the U.S., sales of the Mints silver American Eagle bullion coins continue at a record-breaking pace, with938,000 ounces sold in the pre-holiday week the best weekly total since late May. So far, investors have snapped up more than 26.2 million silver Eagles 20% more than at the same time last year.
Silver has benefited from its dual identity as both a monetary metal and a key manufacturing component. 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, MKS trader Sam Laughlin noted.
In addition to the digital and medical industries, silver also is crucial to the burgeoning solar-power sector.”Silver is increasingly used in solar panels now, Jeremy Wrathall of Investecsaid. Something like 10% of demand comes from solar panels. Solar panels is a growing source of demand for silver, so you have got an additional attraction for silver as well, as a commodity investment and also industrial usage.”
Although silvers profit-taking pullback in the wake ofMondayspowerful surge was expected, the metal likely is building a base for further moves higher as the fallout from the Brexit referendum continues torattle global financial markets.