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Silver and gold continue to surge after Brexit

Safe haven buying in the wake of the UK’s vote to ‘Brexit’ the EU continues to drive precious metals higher. There looks to be plenty of momentum behind silver’s move higher in particular as it continues to outperform gold.

Silver
Source: Bloomberg

Silver prices have surged again. At one point it was up 8% - its biggest single day surge since September 2013 – after already gaining more than 11% last week.

Although it has pulled back a bit from its highs there still looks to be a lot of momentum behind its move higher. Silver has rallied 47% so far this year, and it has just broken US$21 for the first time since August 2014.

Silver chart 1

Net positioning in silver is also incredibly bullish.

Silver chart 2

Gold prices are also putting in a solid performance after they gained a further 2% after the initial Brexit rally, but silver continues to dramatically outperform gold.

Gold chart

Silver’s outperformance of gold has been evident all year, with silver’s year-to-date return almost double that of gold. This may partly be down to silver’s greater exposure to the industrial sector. In the wake of Brexit, expectations for looser monetary policy globally have driven a lot of flows, but we have also seen a rise in fiscal stimulus expectations as central banks increasingly look tapped out.

This rise in fiscal stimulus expectations in the wake of Brexit seems to have rallied a range of industrial metals, but especially silver. This industrial sector exposure has helped drive the gold-to-silver ratio down to its lowest level since August 2014. And if history is any guide, such moves in the ratio usually continue until the long-term average of the ratio of 60 is hit.

Silver chart 3

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