Silver outpaces gold for 2016 to date...
HERE we are at the halfway point of the year, less than two months away from the Rio 2016 Olympic Games, writes Frank Holmes at US Global Investors.
As a group, commodities are the top performing asset class, beating domestic equities, the US Dollar and Treasuries.
Below is our ever-popular Periodic Table of Commodities Returns, updated to reflect the first half of 2016.
Commodities' performance is quite a reversal from the weakness we've seen lately, particularly last year, but we shouldn't expect another 2004 or 2005, when global trade was humming. Conditions are still not ripe for a real takeoff, with manufacturing activity in China and the Eurozone struggling to gain momentum.
But there's hope. Many of the challenges standing in the way of growth were exposed when Britain voted last month to leave the European Union (EU), which I've been writing about for the past few weeks. Most recently, I highlighted some of the winners to emerge from Brexit, among them gold investors, US homeowners and British luxury goods makers.
Hopefully we can add global trade to the list. Brexit has brought to light some of the corruption and economic strangulation by regulation that chokes the flow of capital. Last week I had the opportunity to speak with some EU citizens. Their frustration was palpable.
The cronyism among the EU's unelected officials is nothing new, but it's only worsened over the past decade and a half, they said. The British referendum has encouraged a balanced, intercontinental discussion on the direction Brussels must take now that the corruption and depth of discontent have been exposed for the world to see.
Silver demand had a phenomenal 2015, with retail investment and jewelry fabrication both reaching all-time highs. Led by consumers in the US and India, coin and bar investment soared 24% from the previous year, while jewelers gobbled up a record 226.5 million ounces.
According to the Silver Institute's World Silver Survey 2016, metal demand for photovoltaic installation climbed 23% in 2015, offsetting some of the losses we continue to see in photographic applications.
Caused by worries of a summer interest rate hike and uptick in the US Dollar, gold and silver both stalled in May but have since rallied on the back of Brexit and with government bond yields in freefall. For the first time ever, Switzerland's entire stock of bonds has fallen below zero, with the 50-year yield plummeting to negative 0.03% on July 5.
All-time low yields can also be found in the US – where the 10-year Treasury yield fell nearly 38% in the first half – UK, Canada, Germany, France, Australia, Japan and elsewhere. Roughly $10 trillion worth of global government debt, in fact, now carry low to subzero yields.
This has been highly constructive for gold and silver, as yields and precious metals tend to be inversely related.
What's more, the rally doesn't appear to be done, with UBS analysts making the case last week that we're in the early stages of a new bull run. Credit Suisse sees gold testing the $1,500 an ounce mark as early as the beginning of 2017. As for silver, some forecasters place it at between $25 and $32 an ounce by year's end.
The risk now is that higher prices are pushing away some potential investors. Today Bloomberg reported that gold imports in India plunged a sizable 52% in the first half of 2016, compared to the same period in 2015.