Need to Know: Here’s what’s behind the ‘perfect storm’ sending silver prices surging

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It is hard to find an asset on more of a roll than silver.

On Tuesday, silver for September delivery SI00, +3.84% surged nearly 7%, the highest settlement since March 2014, and 83% above its March lows. Silver was up in the early hours of Wednesday as well.

“It seems the precious metal has been caught up in the perfect storm,” says Jeroen Blokland, senior portfolio manager at Robeco Asset Management.

Much of what’s driving silver also is driving gold — aggressive monetary policy financing of fiscal spending, which limits the ability of bond yields to rise. That is sending inflation-adjusted, or real, yields lower, which tends to boost precious metals.

In addition, silver is still cheap relative to gold GC00, +0.82% by historical measures.

But the latest catalyst may well be the European Union’s €750 billion recovery fund, which not only earmarked 30% of spending on environmental initiatives but said funding of other projects has to be in line with the Paris climate accord. Furthermore, the possibility the EU could issue so-called green bonds may create a safe asset, providing a reference security for private sector green bond issuance.

“The catalyst of the recent rally, however, seems to be the fact that the world is aiming for a ‘green’ recovery, with a significant part of the stimulus assigned to environmentally friendly measures,” says Blokland. “As silver has a wide range of industrial uses, including electronics and solar panels, demand for this metal should rise from this angle as well. We remain overweight commodities as the outlook for both industrial and precious metals looks bright.”

The buzz

The earnings wave continues, with the market focusing on two coming after the close: software giant Microsoft MSFT, -1.34%, and electric-vehicle maker Tesla TSLA, -4.54%, whose stock has more than doubled since Chief Executive Elon Musk said the stock price was too high.

Musk on Tuesday qualified for a $2.1 billion payday, since Tesla’s six-month average market capitalization for the first time has reached $150 billion.

The latest salvo in U.S.-China tensions came as the U.S. ordered China’s Consulate General in Houston shut. Video can be seen of documents being burned. China’s foreign ministry says it “strongly condemned” the move and warned of retaliation.

U.S. President Donald Trump warned the pandemic would “get worse before it gets better” in his first briefing since April. The seven-day moving average number of new cases has fallen outright in 19 states over the past three days, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Existing home sales data for June is expected to confirm the housing market’s boomlet in activity.

The market

Following Tuesday’s session, when sent the Dow industrials DJIA, +0.59% higher and the Nasdaq Composite COMP, -0.80% lower, U.S. stock futures again were mixed, with Dow futures YM00, -0.37% lower and Nasdaq-100 futures NQ00, +0.18% higher.

The dollar USDCNH, +0.30% rose above the key 7 level vs. the Chinese yuan after the announcement of the Houston consulate closing.

Oil futures CL.1, -1.55% fell.

The chart

Credit Suisse chief U.S. equity strategist Jonathan Golub says there is a lot to worry about — an increase in COVID-19 cases, a strained relationship with the world’s number two economy, ballooning deficits and the potential for higher taxes — but not market concentration. Sure, Apple AAPL, -1.38%, Microsoft, Amazon AMZN, -1.83%, Alphabet GOOG, -0.46% and Facebook FB, -1.49% represent 22% of the S&P 500 market cap, versus 18% for the top five in March 2000. But they also are delivering faster relative growth, and trade at a much lower multiple, he says.

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