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Analysis
The extent of the damage that lockdowns have caused the global economy are enough to scare anybody and the uncertainty this has produced is bound to see more investors take shelter in haven commodities. While gold is the natural choice, the apparent shortages of available gold are likely to mean that investors also look at silver too, especially as it is so cheap relative to gold - the gold:silver ration is at 1:111. Mine production cutbacks will have led to a fall in silver mine output, but there is no shortage of above-ground silver, so that is unlikely to be a real bullish factor for silver. Indeed, silver supply may well pick up since silver is accumulated by rural communities in many developing countries as an insurance against bad times, such as these. But this does mean they end up selling into the crisis as they need the money to buy essentials. The demand shock that the Corvid-19 crisis has created will have hit industrial demand for silver, but while governments invest in infrastructure projects, solar farms may well benefit, especially since the downturn in economic activity has meant city populations have seen just what a world with less pollution looks like. Conclusion
Given so much uncertainty, it seems likely the majority of investors are looking at wealth-protection rather than putting too much at risk looking for bargains. While equities may be rebounding now in response to all the monetary and fiscal stimulus, the rebounds may struggle in the face of actual data showing how bad things have become. As such, we think the main bullish case for silver is that it is a relatively cheap proxy for gold.
All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.
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