Brexit Impact on Silver

The shock outcome of the UK referendum on the EU membership (Brexit) resulted in a collective panic, the wave of which reached the majority of investors who dealt with major stock indexes, shares, GBP or EUR related pairs, etc. Due to the turmoil, the demand for safe-haven assets increased as much as the GBP dropped. The investors have started to actively sell stocks and riskier debt securities, buying safe-haven assets, like government bonds, the Japanese yen and precious metals. In this context, silver was perceived as more attractive than gold, and recorded the highest growth among the traded assets.

Here is the growth percentage of the most important commodities in the second quarter of 2016:

After the referendum, which was held on June 23, gold prices on the NYMEX rose 7%, whilst the price of silver increased by 14.3%, at one point reaching a 17% gain.

On July 8, silver closed Friday trading session at $20.320, which is up 15.59% compared to $17.150 – the open price on June 24, the day when the referendum votes were made public.

Gold prices closed Friday session at 1367.55, which is 7.56% more than the open price on June 24 at 1253.70.

Silver clearly overcomes gold and other commodities in its rally after the Brexit votes. But why is this?

“It is more volatile. It tends to swing around a lot more”

than gold, explains Simona Gambarini, an economist at Capital Economics.

Additionally, because of its low price silver its regarded as “poor man’s gold” and as is seen as being a great choice for traders who want to spend less on cheaper assets. Xiao Fu from BOCI Global Commodities (UK) gives his advice: “for people who can’t afford gold, look at silver”.

Silver’s exposure to the industrial sector also supported this demand. It should be noted that today’s gold-silver ratio is far away from the historical ratio, which was 16. This ratio was hit more times in the previous century during major crises.

So there is much more space for Silver than for gold. The experts actually predicted such a rally before June 23.

TD Securities, made their predictions before Brexit referendum, and expected silver to reach $20 and gold – $1392, with swift corrections if Britain stays. Looking back, the predictions turned out to become real.

Today, some experts expect the silver price to reach $26 level very quickly, with people afraid of an economic recession and focusing on safe haven assets. The future US interest rate hikes by Fed and the US elections with the possibility of an unstable Trump becoming president can also shake commodity prices.

However, because of the possible long-term implications of Brexit, the limit of the silver’s rally is uncertain. One thing is for sure at the moment, those who want to open long positions on silver via CFD trades and other precious metals have the opportunity for some high returns.