After the UK’s decision to leave the European Union, investors dumped their risky debts and sought safe-haven assets such as the yen, government bonds and precious metals. Although, gold was the talk of the town in the media, it was silver that saw the greatest increase in value. Already high gold prices and the threat of recession have led investors to seek the next best thing - silver.
Although an attractive asset, silver tends to be more volatile than gold, and fluctuates a lot more than other precious metals, said Simona Gambarini to WSJ, an economist at Capital Economics. Historically, silver tends to outperform gold both on the increase and decrease in value. When prices climb, it moves higher than gold but sinks further when the value drops. Gambarini adds that silver will continue to outperform gold because the US and Chinese economies will perform better than expected, especially post-Brexit. It will take a lot for silver to reach the same heights as gold; it is only a matter of time before the silver supply will fall after its peak in supply increases.
Investors also believe that the US Federal Reserve will decide against raising interest rates this year because of economic ambiguity.
"Following Britain's exit from the EU, investors' expectations have increased that the world's central banks will engage in more loose monetary policy, which will lead to a fall in sovereign bond yields and consequently the transfer of capital into defensive assets," Roman Kuznetsov, an analyst at asset management firm QBF.
As for how long this increase will continue….
"This trend on the markets will continue at least until the future of Britain's relationship with the EU is decided, and until then defensive assets will continue to rise," predicted Artem Deev, head of analytics at AMarkets.
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