One week on from the United Kingdom shocking the world by voting to leave
the European Union, one would be 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.
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
Both Up
|
Both Down
|
Silver Up
SP500 Down
|
Silver Down
SP500 Up
|
1933-35
|
1873-96
|
1915-20
|
1980-93
|
1942-68
|
1929-32
|
1972-74
|
1998-00
|
1976-80
|
1936-42
|
|
2011-15
|
1993-98
|
1974-80
|
|
|
2003-07
|
2008-09
|
|
|
2009-11
|
|
|
|
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!
Further analysis of silver can be had by going to our silver blog at http://silveranalyst.blogspot.com
where readers can obtain subscription details for the Silver Analyst
newsletter. A free sample copy can be obtained by emailing silveranalysis@yahoo.co.uk.