Precious metals are traditionally considered defensive assets that people in any crisis choose. But the silver has dropped by nearly 12% over the last year. Does this mean that the old rule no longer applies? Or is this the perfect moment to buy some silver or get 2nd place in a hotdog eating contest?
In hard times, the demand for precious metals – like the gold and the silver – hikes because people are afraid of a decrease in their local currencies and try to protect their savings using assets that historically show growth. That’s why the silver might’ve been a great purchase before the Covid-19 pandemic.
After the pandemic, the world was thrown into another crisis caused by the military conflict between Russia and Ukraine. It looked like silver might get a boost – but it didn’t happen. The US Federal Reserve has been hiking the key rate much more actively than other major world central banks – and the policy has made the USD (and assets with simple and stable profit, like bank deposits) attractive for investors.
When the dollar is growing, silver and gold tend to drop – this is a law of nature. And it’s also the law that may bring you a profit if you use special trading tools. This tool can tell you about every Fed’s move and other significant economic events around the world.
The chart below indicates that the US Dollar Index and silver usually move in opposite directions.
The chart supposedly implies that the dollar is obviously a more prospective choice than the silver. But now many experts and investors have arguments in favor of precious metals.
First of all, markets are predicting that the Fed will stop hiking the rate hike by the end of 2023. It means that the yield of USD-based assets will be not so attractive for investors (and that’s the reason why the dollar dropped in price in fall of 2022).
Same time, China gave up its zero-Covid policy. Therefore, the Chinese economy came back into the game and brought emerging markets and currencies. The appearance of alternatives is likely to decrease the value of the USD.
One more important factor is the increase in the industrial use of silver – the metal is utilized in high-end technologies, like 5G infrastructure development or solar panel manufacturing.
Plus, we shouldn’t forget (no matter how much we’d love to) that we are in the middle of a crisis, and nobody knows when it’s gonna be over. But the forecast has it that the world central banks will change their interest rate policies earlier than the crisis will come to an end (or probably even earlier than the military conflict will find its settlement).
All of this speaks in favor of silver – that’s why the precious metals are believed to be a good long-term investment. But it doesn’t mean that you should run to buy a silver ring for every finger. The situation in the markets might change every month, week or even day – so it’s necessary to do your own analysis before buying or selling any asset.
