Silver sank to its lowest level since 2009 this week, another victim of the market-wide sell-off triggered by the Covid-19 crisis.
In the past month alone, spot silver has fallen by more than 30 per cent, following the downward lead of other precious metals such as gold and palladium. Although by mid-morning trading it stands up 0.12 per cent at $12.41 per troy ounce.
The price of silver on certain exchanges around the world has fluctuated wildly in recent days. The Shanghai Gold Exchange (SGE), for example, has imposed a one-day trading halt on its Ag (T+D) silver contract following such fluctuations. Its trading margin on the same silver contract fell by 13 per cent in Tuesday trading.
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With the novel coronavirus outbreak bringing some Asian, European and now North American nations into effective lockdowns, the global economy has suffered its worst shock since the global financial crisis of 2008.
In order to counter the economic impact of the virus, many central banks have undertaken emergency interest rate cuts, most notably the Federal Reserve which reduced its federal funds rate to 0-0.25 per cent.
Precious metals, particularly gold but to some extent silver also, are traditional safe-havens at times of economic crisis for their ability to store value. Interest rate cuts normally trigger increased interest in these commodities as they reduce the opportunity cost of holding non-yielding metals.
In the past fortnight however, it would appear that investors have not flocked to these safe-havens, preferring US treasuries, the Japanese yen (JPY) and the Swiss franc (CHF) instead.
While the liquid nature of precious metals often attracts investors, this very liquidity has contributed to silver’s recent plunge. As financial institutions seek to cover losses incurred elsewhere in the market they sell their silver and gold holdings before margin call.