Silver is seeing a slight bid in early action on Wednesday as stock futures move sharply lower while the dollar index sinks. China is once again dominating the headlines this morning as its currency, the yuan, was allowed to sink for a second day. Yesterday’s 1.9 percent devaluation of the yuan is seen as a move by the People’s Bank of China to boost its economy, while today’s further slide will serve to do the same.
The fact that China is taking aggressive steps in stimulating its economy would seem to demonstrate just how much the macroeconomic picture has deteriorated. It is by no means a secret that China that has seen some weakness in its data in recent months pointing to a significant slowdown. Chinese equities have seen some enormous volatility in recent weeks, as well, and may only be calmer at this point due to aggressive government intervention.
Further devaluation of the yuan by China could potentially pose a deflationary risk that could possibly benefit silver and other precious metals. Silver has not seen much in terms of flight to safety buying in recent months, but that could all potentially change.
The concerns over China and its economy are weighing on commodities and stocks, as well. Crude oil saw significant losses yesterday. Not only is OPEC pumping a great deal of oil currently even at depressed prices, but concerns over China and future demand saw the price of black gold take another step toward the $40 per barrel mark in what some analysts believe will be a move down to $30 per barrel.
Lower energy prices have weighed on energy stocks and this trend looks set to continue for now. This may lead to increasing stock market volatility and demand for perceived safe haven assets, such as silver and gold.
Recent concerns over China could even potentially make the Fed think twice before possibly raising interest rates next month. If market volatility increases in the coming weeks, the central bank could potentially elect to hold off on its initial rate increase. This could work in silver’s benefit potentially while silver may also stand to benefit from capital rotation out of equities and into other asset classes.
While slower Chinese growth is a negative for the raw commodity sector, recent developments out of China could also be a potential bullish catalyst for the white metal. Recent events and disappointing data could spell a possible top in equities markets and investors may potentially look for alternative asset classes to put capital to work in.