Silver Hits $20 An Ounce On Global Risk

On Wednesday, silver rose by $20 an ounce. There is fear that the global economy is not shaping up the way that it is supposed to. Silver has actually been performing better than gold lately. Silver has traded up for six sessions in a row, as investors seek safe haven assets with all the global uncertainty. Silver has not hit the $20 an ounce level since August, 2014. Silver has been greatly impacted because of negative interest rates, Brexit Risk, volatility in the currency trade, and a failure in the central bank policies around the globe.

Negative Interest Rates

Thus far, much of the Eurozone and Japan have been using negative interest rates in hopes of getting people in the economy to spend money. The truth is that this has been having a negative effect and a lot of these economies continue to struggle. How do negative interest rates correlate into the silver trade? Instead of people having to pay for keeping their money in banks, they would much rather use that money to buy silver. While silver trades sporadically in value, investors would know that their investment is secure in a safe haven asset. Silver is considered a safe haven asset because it is a commodity, and as such investors flock to these assets in the time of high global economic risk.

Brexit Risk

The reason for silver trading higher has been fear that Brexit will cause a collapse in the U.K. economy. If the U.K economy starts to diminish that will in turn cause other markets near the country to falter as well. They are all close to each other and rely on trade for economic growth. With markets banking on a collapse in the U.K. economy, it is highly likely that investors will head for safe haven assets such as silver. For example, silver has gained 45% in dollar terms since the Brexit vote was announced on June 23. It is no surprise that investors have been flocking to silver as protection for their portfolios.

Weakened Currencies

Global currencies have been spiraling out of control, with the yen continuing to move higher against the dollar. The sterling had recently tumbled to a 31-year low against the dollar as soon as the Brexit vote was announced. With currencies fluctuating at such an alarming pace, it makes sense for investors steer away investing in these. Instead, investors are heading to silver. The increased demand for silver should help push prices to higher levels.Demand in China and Centralbanks may help drive silver higher in the near-term. In other words, when gold trades higher so does silver. Central banks have big exposure to gold, but are lacking in silver. The need to buy more silver, will be highly bullish for its price. Considering that currencies are not as reliable in this heavy risk environment, flocking to silver seems like the logical choice.

Failed Central Bank Policy

Central Banks around the world have been struggling to keep their economies afloat. They have implemented monetary easing and other measures in an attempt to increase wages, boost job growth, and improve the overall economy. Even with all these attempts of trying to boost activity, Central banks have failed to achieve their goal. In the face of uncertainty in an economy, investors tend to flock to safe haven assets such as silver. Unless these central banks implement policies that help bring back growth to their countries, then silver may trade higher. Traders should watch when Central Banks implement easing policies. That is because there is a correlation of silver trading higher, whenever quantitative easing is performed. There are two technical levels that traders should look for. The bulls have the advantage for the moment, because a break above the $22 level will trigger additional buying. The bears on the other hand, are not in a good spot. That is because silver would have to tank below the support level of $18.50 to gain traction to the downside.