Silver Moves Up As Europe Moves Down: Is Silver The Ideal Hedge Against A Bear Market?

Tuesday, April 5, 2016

When stock market prospects are poor, many investors turn to hedges that will keep the value of their investments high even as the prices of businesses decrease. Traditionally, this means that people will hedge their investments with gold and silver, especially if they’re worried that stocks are simply not going to give them the returns they seek.

We saw this just hours ago with a big uptick in silver on a bad European stock performance. But is this just a quick correction of silver, which has been bearish for about a week, or is it indicative of something bigger - that investors truly do treat silver as one of the great haven investments to hedge against the stock market? Let’s look at it more closely.

Silver Rises…Europe Sinks

A one-and-a-half percent increase for silver in one day might not seem like a lot, but whenever the trends of precious metals buck what’s going on with stock confidence, it’s always worth reading about. That was particularly true just recently as European stocks went down - you can see that the FTSE 1000 on the London Stock exchange fell about 65 points.

When the two things happen simultaneously - precious metals up, stocks down - it’s tempting to point to the correlation as evidence that investors truly do value precious metals as a hedge. But given that this is just one day in the market, is it really fair to assume that it's what happened on any given day? After all, what about all of the days that both metals and the markets increase? Or both decrease? To make sense of these questions, we’ll have to look at some long-term trends.

Long-Term Trends In Silver

When considering whether or not investors are really flocking to silver as a safe haven, you have to pay attention to headlines over a period of months, not days. Days can be interesting, sure, and major market events often happen in the course of just days, but that doesn’t mean it will give you a complete snapshot of what’s truly going on in the world of investing.

To zoom out, look at silver’s performance on the year, or over the previous three months or so. Now do you see a trend? That’s a much more complete look at the market’s current faith in silver than any one individual day - even if that day happened to be good for silver.

What are we to conclude when we take in the big picture and combine it with the smaller picture of silver’s performance on the day? We should conclude that silver is a more viable investment than the bears think, while remaining cautiously optimistic about its future. If indeed the world is headed to a recession or an economic slowdown, investors may indeed flock to silver and gold to hedge their bets. Today was one indication, but if the past three months have shown us anything, it was to expect days like these.

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.