Investors look at the long-term viability of underlying assets and make their decisions accordingly. Traders on the other hand look at the short-term movements in underlying assets and profit off the volatility that exists in any particular market at any given time.
One of the markets that have undergone tremendous volatility of late is that of precious metals. Gold and silver are typically the go-to safe havens when equities markets are on the decline. This is precisely what has happened after the China equities rout that saw trillions of dollars erased from global stock markets. Much of the volatility that has been felt in equities is a direct consequence of structural weakness in China. Recent economic data from Beijing indicates that imports have declined by 20.4% in China for year-on-year for September. This sent emerging market bourses into the red, and dragged down developing markets too. Import data is particularly important when it comes to the world’s second-largest economy, since China is a major consumer of commodities.
This is especially true when it comes to energy and metals. Many of China’s suppliers are multinational corporations based in emerging markets. As such, we have seen declining demand placing immense pressure on the revenues of these companies, resulting in layoffs, falling profits and now the shuttering of mines across Africa and South America. Glencore PLC announced that it would be temporarily shutting mines in the Democratic Republic of Congo and Zambia and elsewhere. Recently, Glencore shuttered the Eland platinum mine in South Africa with 970 jobs eliminated overnight. As one of the precious metals, global platinum production has now diminished and the hope is that demand and supply will reach an equilibrium point above the current price point. That same conventional wisdom applies to all precious metals and all commodities, silver included. If additional mines are shuttered then production capacity diminishes and the theory is that price should increase ceterus paribus.
