Global silver market’s reaction to geopolitical tensions

Germany has already begun to sound the alarm about the sanctions on Russian products like gas and other raw materials could hurt the economy and bring a lot of industries like the metals and electronic industries down to their knees. The increase in the tensions in the Ukraine increases the possibility of a far-reaching embargo on Russian gas and oil. Europe relies a lot on Russia’s supplies and it has been delivering but if the war does not end soon things could turn things for the worst in a very short time.

The war in Ukraine is clearly increasing the pressure on industrial metals like steel and silver amongst other commodities. It has demonstrated how conflict can act as a trigger for the acceleration of inflation and economic collapse. If this is happening to an industrial metal like steel how much more is the effect going to be on silver? The effect of war on the silver price and the price of other commodities has exacerbated inflation across the globe. It is precisely in this context that views on the effects of inflation are changing.

Yes, inflation is a monetary phenomenon, but inflation is no longer a marvel linked to disruptions in the economy. The U.S Fed Chairman admitted as much. This admission, at this point in the crisis, is a shock to the bond market.  A lot of funds are withdrawing from the bond market which is bad for the economy. The credit market has been experiencing tensions reminiscent of the premises of the last financial crises. To counter, the U.S Fed has had to increase its rates.   

Sharp rate hikes are traditionally unfavourable to precious metals like gold and silver but gold has held on surprisingly well at such high rates and the change in the Fed’s rhetoric. The precious metals market is a global market that is influenced a lot by the U.S currency and its economic policies. The United States of America might not be the biggest silver producer and it has surprised many that the price of gold holds steady at such levels, especially after the U.S Fed changed its rhetoric. Gold did not react to the rate hikes because the pace of inflation is not receding, so rates remain stable.

The silver price is also holding steady at high levels despite the situation in the other money markets. If inflation continues to rise and geopolitical tensions do not relent, the gold is expected to still rise in value. The silver market is also expected to catch us. Currently, a lot of dealers or brokers are charging high premiums for the gold they buy. Recently, these premiums have grown to 60 percent on certain silver bullion products. This growth is far more than what was seen before and it is expected to sky-rocket for certain.                          

With that said, there has been some movement in the silver market that is anticipating this catch up in prices. For instance, many silver bullion dealers have increased their premiums beyond 60{c3801f602d6a99443ba7499e10e085a47cea694d994d63bc0afe867f5cad8ae9} on some silver bullion coins, which exceeds the levels seen during the February 2021 short squeeze.