The bull run in the global precious metals market was extended for the second consecutive month in August as silver prices rose to 7-year high of $29.53 per troy ounce. Weakness in the global equities market and the fall in the value of the US Dollar against major currencies have been pushing the demand for precious metals. Moreover, an improving economic condition in China after pandemic Covid-19 has been pushing the country to consume more and more metals including silver.
Fearing that slowdown in the global economic condition may continue till end of 2020, most of global central banks continued to adopt low interest rate policy. Further, many countries are pushing for more stimulus package to revive growth of the economy. On the other hand, the Chinese economy has been improving post relaxation of lockdown. As result, in the second quarter, Chinese GDP grew at a rate of 3.2 per cent year-on-year against prior quarter negative growth of -6.8 per cent year-on-year. The jump in price reflects renewed interest by both retail and institutional investors in silver as an investment vehicle. As a result of the rally in the prices, silver-backed exchange-traded funds have seen the biggest rise in inflow.
Rising consumer demand for industrial metals including silver from China is also pushing the prices higher. Silver is largely mined along with other base metals and since there was extended lockdown in major metals producing countries, there is a shortage of silver supplies. Silver price rally was pushed by the fact of fall in dollar index, which dropped to the low of 91.993 in August. On one hand, concerns regarding the supply of silver from all the sources have been affected because of prolonged lockdown, and on the other hand, safe-haven buying is emerging from all investors across the globe.
With an improvement in economic condition of major economies following series of measures taken by the governments and central banks, the global equities markets are showing signs of good recovery thereby putting pressure on the gold and silver. The global manufacturing sector is showing an improvement wherein the US manufacturing PMI came in at 56.0 in August against 54.2 in July, while Caixin manufacturing PMI of China came in at 53.1 against 52.8. The US non-farm payrolls rose by 1.371 million in August, while unemployment rate fell to 8.4 per cent from 10.2 per cent in July. Though the economic numbers are showing an improvement over previous data, the Fed is expected to remain conscious on its interest rate policy until the situation comes into normal.
The writer is head (commodity & currency research) at Karvy Comtrade Ltd