Silver has taken a big hit following the Bank of England’s hike of its benchmark interest rate which was double the size of market expectations.
Rather than nearing the end of their rate hike cycles, yesterday’s move by the BoE illustrated how much of a concern high inflation remains for central banks around the world and raises the prospect both of more interest rate increases and the likelihood of economies tipping into recession as a result.
Both of these factors are negative for silver with the physical metal’s lack of yield making it less attractive to investors at times of rising interest rates while the metal’s industrial demand could shrink if there is a lasting recession resulting in companies cutting back on their spending. That said, investors can still earn a yield on their silver if they own silver KAG, a digital asset backed by physical silver, of which they hold legal title.
The size of silver’s drop, with the price plunging almost $2 an ounce to a little above $22, is a reminder of how much more volatile moves on silver can be versus its precious metal peer gold.
With the silver price now trading close to its lowest level in three months, this could represent a buying opportunity for an investor that can still see the long-term appeal of silver as the world seeks to move away from fossil fuels and transition towards renewable energy sources, including solar, which requires significant amounts of silver in the manufacturing of the photovoltaics.
Yet while the long-term optics remain promising for silver, there may well be more short-term pain to come as investors assess how likely and how lasting a global recession may be.
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.