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One week on from the United Kingdom shocking the world by
voting to leave the European Union, one would not be lacking in predictions
of doom and gloom across the political and economic board. As one who voted
to leave the nascent European Superstate, the oft (mis)quoted words of
Benjamin Franklin came to mind when he suggested that those who trade liberty
for security deserve neither.
The Pound and British stock markets promptly dived, as
did practically all the major stock indices. Reassuring words from the
Governor of the Bank of England on currency intervention and possible QE
played their part as did the actions of those seeking a bargain in cheaper
stocks. At the time of writing, the markets are bouncing back as the
realisation that nothing has actually happened yet dawns on investors.
The Prime Minister has to trigger Article 50 of the
Lisbon Treaty to begin divorce proceedings and until then, nothing
substantial will happen. This will involve at least two years of negotiation,
during which time markets will respond as they perceive how the negotiations
are proceeding. Crucial will be the negotiation regarding trade tariffs as
that will have the biggest impact on the economy of both the UK and EU.
Just now, it is all about fear and uncertainty. You can
bet that the ultimate outcome won’t be as bad as the “Remain” camp said and
not as good as the “Leave” camp argued. The next recession was already on its
way anyway as there has not been one for seven years and that is above the
average recession to recession period for the last 60 years. The expectation
may be that these events will exacerbate rather than cause a recession.
Meanwhile, I had mentioned in a previous article how
silver priced in Pounds Sterling had responded to the slow motion dive of the
Pound against the US Dollar as we saw a gap open up between silver in Pounds
and silver in Dollars.
It is fair to say that the gap has widened even more
since Brexit was confirmed. As a silver investor, I won’t need to tell you
that silver as priced in dollars has broken to a new high of $19.39 as I
type. Using the recent low of June 1st ($15.81) gives a total rise of 22% in
30 days.
Meanwhile, the equivalent rise in silver as priced in
pounds is 34% from £10.86 to £14.56. The chart below (courtesy of
netdania.com) shows the relative movements of silver in pounds (top line) and
silver in dollars. As you can see, silver in pounds is comfortably
outperforming silver in dollars.
(Click on image to enlarge)
Meanwhile, the talk is of silver gaining an advantage
while the stock markets eventually tank down into recession. I would be
careful what one wishes for here. I can quite understand the logic of how
financial institutions taking money off the equity table may put some of it
into precious metals. Likewise, the current volatility in the Pound and Euro
can also encourage diversification (and I still think the US Dollar has
peaked). But that has to be offset by the drop in silver demand by industry,
electronics and jewelers as recession bites.
In every issue of my silver newsletter, I reproduce the
table below to remind subscribers how silver and the US S&P500 have
correlated over the last 143 years. As you can see, precious few are the
years when silver is up when the equity markets are down. I think I would
rather go with the flow of history on this matter.
SILVER VERSUS S&P500 1873-2015
I calculate my own recession indicator for subscribers
and when that flashes green for recession, the probabilities are more
favorably disposed towards this emerging silver bull taking a rest at that
point (and recession-proofing your own affairs). Currently, that indicator is
not flashing “recession” and neither are my silver indicators flashing
“sell”. The silver bull is far from over!
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