PD Photo / US Department of Treasury
The slowdown of economic growth in the US and China, along with the mountain of debt in the Eurozone, has the global economy tottering on the edge of a recession similar to the one in 2008. Similar circumstances have elicited panic, driving down global markets. However, the precious metals gold and silver showed gains, though the performance of silver was not as impressive as of gold. Compared to last year, the demand for gold increased by 3.23 %, while that of silver increased by 1.85. The less demand for silver is a possible indicator for the slackened demand for silver for industrial purposes.
The political slinging in the US and the European Union, the volatile currency markets and sagging global economies have made global investors turn to gold, the ultimate metal for hedging. Those who cannot afford to invest in gold turn to the white metal ‘silver’ as a more affordable option.
The European Union leaders are trying to get back on their financial feet. The financial crisis in the EU has echoed even in the larger economies of Spain and Italy. The European Central bank tried to ease investor fears by stating that it would buy Spanish and Italian government bonds to take on more EU debt. This, however, does not seem to have soothed the fear triggered among the investors.
Investors are sceptical of the US and EU sorting out their financial problems on their own. And their conviction does not seem misplaced. Investors are backing out of exposure to production in western countries as their governments seem unfit to handle the problem of prolonged unemployment and economic slowdown.
In the dark
The US financial situation is stretched to its limit and might snap at any time. China pointed out that the US seems addicted to debt and is functioning on a crippled political system. The general opinion was that the US should cut down its military expenditure and curtail its overblown social welfare costs and propose using the US dollar as the global reserve currency.
China, the largest creditor to the US, can demand the US at any time to address its debt problems for the protection of its Chinese dollar assets. The belief among the investors is that the world is heading towards a global recession far ugly than previously experienced. Countries around the world are taking measures to play down panic in the financial sector. Any effort by the US to stabilize the tottering global economy is inconceivable. The least it can do is to make an effort to liquidate the economy.
A look at silver
The only role left for the US is quantitative easing, and this fact has played a positive role in the price action of precious metals.
How will the precious metals be affected if the present economic scenario proves to be a replay of the year 2008?
The verdict for the gold market is good as investors will use their gold hoardings to bear the losses incurred elsewhere. The demand for silver will go down due to its decreasing demand in industries along with other base metals. So silver will not perform as impressively as gold.
Metal companies have changed rankings in gold and silver prices considering the slow economic growth in the US and China. The EU debt crisis is also taken into consideration in this regard.
A look at the global recession of 2008 shows that silver prices dropped drown as the recession hit the economy. However, by the end of the year 2009, silver posted enormous gains by December.
The conclusion in this scenario is that although silver will suffer due to decreased demand in industries, it might continue to perform well for silver investors.