Asian and London trade saw a jump in the value of silver on Tuesday, with a net gain of more than 8%. Spot silver prices rose as high as $21 per ounce, closing the gap on the Gold/Silver Ratio and regaining the ground lost since February.

Traders use the Gold/Silver Ratio to measure the value of the two precious metals relative to each other, with fluctuations generally ending as one metal catches up with the other or the surging metal returns to its original value. Gold almost always leads the way, but Tuesday’s frenetic market activity showed silver drastically reducing the difference to below 90 – having peaked at 124 in March.

“It’s a typical low liquidity summer market where prices tend to be easier to push, especially when momentum has been established as per the trifecta of support,” Ole Hansen, head of commodity strategy at Saxo Bank A/S told Bloomberg.

Commodities have fared especially well in Q2 this year, as the COVID-19 crisis has brought about seismic shifts in global markets and driven investors to seek havens.

Silver often experiences explosions in value under the right conditions. These typically involve rebounding manufacturing demand and increasingly loose monetary policy, both of which increase silver’s relative attraction as a store of value.

Speaking with the Financial Times, analysts at Citi predicted that both of these factors would drive silver prices higher over the next 6-12 months, potentially hitting $25 an ounce by the middle of 2021.

Fresmillo, a Mexico-based silver producer listed in London, has seen its share price rise by nearly 70% this year, marking it as the best performer in the FTSE 100.

Gold prices reached their highest level in eight years on Wednesday, while market shares saw a dip in investor enthusiasm.

Spot gold XAU= rose by 0.6% to $1,777.53 per ounce. Earlier, it hit its highest going rate since October 2012 at $1,779.06 per ounce.

MCX Gold futures also saw a price increase, and the SPDR Gold Trust announced that its holdings had risen 0.28% to 1,169.25 tonnes on Tuesday. Meanwhile, the pan-European STOXX 600 index fell by 1.6%, indicating a potential three-week low.

Investor concerns can largely be attributed to rising COVID-19 infection rates in some areas of the world, with Latin America’s death toll recently having reached 100,000 and record single-day infection rates being recorded in some US states.

However, broad political concerns have added to anxiety. Reports that the United States is considering placing tariffs on $3.1 billion of exports from western European nations, and that the EU may bar US travellers due to surging COVID-19 case figures, have not aided market positivity.

Neil Wilson, chief market analyst at Markets.com, commented that “Gold is a clear winner from this pandemic,” noting that the commodity was initially sold off in March as investors rushed to acquire cash immediately.

“Since then gold has made substantial progress in tandem with risk assets since the March lows because of central bank action to keep a lid on bond yields. The combination of negative real yields and the prospect of an inflation surge due to massively increased money supply is sending prices higher,” Wilson continued.

In several sectors of the economy, negative prices have existed for years, meaning that it is not the seller but the buyer of a product who is paid. Examples can be found in power generation and banking. Triggers are imbalances between supply and demand and marginal costs of zero or below.

In the traditional world of physical products, marginal costs are significant and so prices of zero are rare, and those below zero practically never occur. The Internet and other technologies are changing this situation fundamentally. For many digital businesses the marginal cost of an additional product unit is often zero or close to zero – for example adding a new subscriber to a streaming service such as Netflix.

We’ll now cover three interesting scenarios where these effects can be observed.

Negative prices from oversupply

At the European Power Exchange the number of hours with negative electricity prices has increased from 15 hours in 2008 to 211 hours in 2019. Last year, the power producer paid the buyer a (negative) price per megawatt hour for almost ten days. The buyer received the electricity plus money. How can this be explained?

In this case, even when demand for electricity is low, stopping production is not possible.  In order to be able to produce on days with positive prices and make a profit, the producers must subsidize the electricity on days with negative prices.

With the negative oil prices we are currently observing, we encounter the same conditions. It is more advantageous for the oil producer to pay the buyer something in addition than to interrupt production or rent expensive storage capacities.

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Negative interest

Interest is nothing other than the price of money. Negative interest rates were first observed in Denmark in 2012. Today they have become a widespread and much discussed topic. In some cases we have seen negative interest rates on loans… so a financial institution is paying someone to take a loan!

For European banks it can be more profitable to lend the surplus money at an interest rate of -0.2% instead of depositing it at the central bank and having to pay negative interest of -0.5%. And if depositors are willing to provide the bank with money at a negative interest rate, the bank can lend this money at a negative interest rate and still achieve a positive contribution margin.

Pricing when marginal costs are negligible

In traditional transactions, from the seller's point of view, the theoretical short-term lower price limit is the marginal cost, which means that he or she only sells a product at a positive contribution margin.

That said, a price of zero is common in promotions. Free samples (for pharmaceuticals or consumer products, for instance), are widespread for new product launches. This tactic makes sense if the price of zero stimulates sales in subsequent periods.

These tactics become even more powerful for subscription services such as online news subscriptions or streaming music/video services. That is why so many offer a 30-day free trial, because once the subscription is started then future sales are almost 'automatic'.

However, the question arises why zero should be the lower price limit in this situation. With marginal costs of zero this option becomes much more attractive than with the significant marginal costs in the traditional economy.

For many digital businesses the marginal cost of an additional product unit is often zero or close to zero.

In fact, such negative prices can be observed. Commerzbank has been crediting new customers with 50 euros for a long time, which means it pays a negative price. The same applies to the voucher of the same amount that METRO Cash & Carry gave to new customers.

In its initial phase, PayPal also used negative prices. Each new customer received 20 US dollars. In China, providers of bicycle sharing services such as Mobike paid their customers to use the bikes to return them from the suburbs back to the centre of the city, where they are needed more.

Ultimately, the question is how marketing and promotional measures work compared to negative prices. Product launches are regularly supported with substantial budgets. The funds flow into instruments such as advertising, displays, promotions and discounts. A negative price can be more effective than advertising or similar measures without having to provide larger budgets.

More negative pricing as a deliberate tactic?

It is likely that we see more negative prices in the future. As we write this, the COVID-19 crisis is causing markets to experience supply and demand spikes like never before. This not only upsets the traditional short-term equilibrium but will also have some lasting effects to customer buying behaviour and their appetite for risk.

Will negative prices be used by new entrants as a way to disrupt established markets? To arrive at an optimal outcome, the effects of promotional measures and negative prices must be quantified. In the Internet age, it can be expected that investments in negative prices will increasingly pay off in the future.

Professor Hermann Simon is founder and honorary chairman of Simon-Kucher & Partners, the world’s leading price consultancy. Mark Billige is Chief Executive Officer of Simon-Kucher & Partners.

The coronavirus pandemic is spreading fear around the world, and while countries are doing everything they can to stop COVID-19 in its tracks with travel bans and lockdowns, the financial markets are taking a hit. By now, it has become obvious that we are headed for another recession and the longer it takes to get control of the virus, the more intense the recession will get.

Therefore, it’s about time that we all do what we can to protect ourselves and our finances as much as we can. Luckily, there are several ways that you can adjust your portfolio to better protect it for the looming recession.

With the help of some financial analysts, we decided to evaluate and list seven of those methods.

1. Cash

Cash is one of the best and safest ways to store funds during a recession. It’s also a great method to ensure that you can buy stocks when the market turns or a great opportunity presents itself such as the plummeting of a usually stable stock that will likely bounce back.

Keep in mind that you don’t want to keep all your funds in cash and that you have to combine it with other traditional investments. You should also not expect to make any profits from your cash holdings.

2. Commodities

Commodities and especially gold are known as “safe havens” during global financial struggles. It’s well-known that many stock investors allocate their funds to gold when the stock market falls which, in turn, often results in the price of gold surging.

There are also good ETFs and other commodities that you can place your funds in as long as you analyse them properly. For example, during other recessions, oil has been a good investment but that is not the case this time around.

It’s well-known that many stock investors allocate their funds to gold when the stock market falls which, in turn, often results in the price of gold surging.

3. High-quality Bonds

Historically, high-quality bonds such as the U.S. Treasury bonds have been the best-performing assets during recessions. The reason for this is that bonds, similar to commodities, are considered “safe havens”.

Better yet, bonds tend to provide higher returns for investors than cash and even commodities.

4. Stable Stocks with Dividends

Not all stocks are affected the same way during a recession, and some tend to survive on their own without influence from the regular economic cycle. In fact, if we look back at the latest recessions, we can find stocks that have continued growing.

Furthermore, stable stocks with great dividends act as an additional safety net that gives you as an investor increase liquidity and the ability to continue investing and making a profit.

5. Preferred Stocks

Preferred stocks are a hybrid stock with equal parts equity and debt components which, when placed right, are some of the best types of investments during a financial collapse.

With that said, this can be a risky investment and you have to be very careful. Certain companies can look much better on paper than in real life making them even riskier than regular stock investments.

In addition, preferred stocks as best suited for smaller investments and investors with limited funds.

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6. Emerging Markets

Never lose sight of emerging markets and never stop prioritizing growth. Even during a major recession, there are usually certain markets that continue to thrive. In some cases, new markets start emerging because of the recession.

This often requires you looking for international investments and markets that you normally wouldn’t be analysing.

7. Diversification Is the Best Defence

Lastly, keep in mind that diversification is the best protection against a recession. Never keep all your eggs in one basket and try to spread your investments across several markets.

For example, most experts advise us to not place more than 5% of our funds in commodities unless we have a specific strategy, and preferred stocks shouldn’t make up a majority of anyone’s portfolio.

One Last Tip

Another method that should not be overlooked is short trading. By developing a solid strategy for how your best bet against the market, you can continue making great returns even as the market falls.

Now, most regular brokers allow you to short trade certain assets to a predetermined level but often start limiting the options when a recession starts. Therefore, we recommend that you look into short trading assets using online brokers.

An ETF, or exchange-traded fund, is currently among the best securities to possess. That's because ETFs cost less money to acquire and give you the option to consider other investment vehicles. In this sense, an ETF allows you to open up other profitable areas, especially in the financial, tech, and commodities sector.

It's only a matter of knowing how to diversify your ETF portfolio. However, this can also be challenging for first-time investors who normally think that having the greatest number of small investments gives the greatest benefit. But overdiversification can also be problematic since it doesn't guarantee investors their projected yields.

Then again, there's a right way of structuring an ETF portfolio to avoid encountering pitfalls along the way. Here's a guide to help you diversify your ETF the right way.

Pick the right types of assets

First off, you need to choose ETFs that are stable. In other words, choose only those that have a stellar record of high yields in the past. You may also look into the cost of acquiring an ETF as not all of them are affordable. But the most critical part of choosing an ETF is knowing what stocks and investment vehicles can be accessed once you have purchased an ETF that tracks a specific index and has a high exposure to top-performing holdings such as Amazon. One good strategy for beginners who are looking to diversify their portfolios is to consider broader indices to reduce risk.

Choose a trustworthy provider

It's not enough to determine the specific asset classes you want to focus on. You may also need to look at the institutions that are selling ETFs without confusing first-time investors. This is important since you need to be aware of the terms of the ETF sale so you can structure your investment strategy better. You will need all the information you can get. So, be sure to request relevant information that's easily understood from an ETF provider. Such information will be crucial when you compare ETFs with each other. From there, it becomes easier to find an institution that gives you everything you need to make your choice.

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Cross borders

There are a plethora of ways you can go about building your diversification strategy. But the best way is to never concentrate on specific companies or industries where your money is sure to grow. That said, make sure to look at other companies, market segments, asset classes, and geographical clusters so you water down the risk of losing all of your money.

Automate your portfolio

As you include more asset classes, companies, and locations to your ETF, managing your portfolio becomes more complicated over time. Luckily, there are portfolio solutions out there that can help with rebalancing and evaluating low-cost funds all while reducing your tax losses. Robo advisors have become particularly useful for people who either have no time to manage their portfolios themselves or get someone to manage an increasingly diverse mix of bonds and stocks. Betterment, for instance, allows for tax-efficient rebalancing and automated asset allocation that give investors an increase of 1.48% in returns. When it comes to choosing the right platform for automating your portfolio, pick one that has all the right features.

Managing an ETF shouldn't be that hard once you get around the technicalities. The success of your ETF portfolio will also depend on the decisions you make, so make sure to apply the tips above and start enjoying passive income!

Why Invest in Gold?

There are several reasons to buy gold, all of which can differ from person to person dependant on their current position and experience in trading. While some tend to consider gold for a long-term investment, others might turn to the commodity as a way to make money before cashing in their investment. Regardless, political uncertainty can affect the success of any trading intention drastically. However, an investment in gold can actually work out in three different scenarios:

As a Hedge

Hedges are essentially a form of investment made to offset potential losses in another class of asset. In other words, an investor may buy gold to hedge against the potential decline or volatility of a currency or stock. Gold can act as a defence against inflation for this reason, but often requires fast movement to truly reap the benefits. For example, if a stock market began to crash, an investor could sell their stocks and buy gold. From here, as the stock market began to recover, they could sell the gold and move back to the stock market with their profits.

Safe Haven

Those who are investing in risky ventures can benefit from having a safe haven and gold acts as precisely that. An investor would buy gold, even as the prices continued to skyrocket, and could go on to sell this when needed. Alternatively, it acted as a way to either make a profit, or hold onto potential profit in the future if things began to recover. Essentially, buying gold as a safe haven gives you a financial buffer, even when stock markets are volatile or crashing.

Direct Investment

While buying gold as a direct investment isn’t as common, those wanting to buy gold for jewellery, technology or just as a finite valuable substance, as well as those who are investing solely for the future increase in the price of gold, direct investors often have their reasons for doing so. Of course, gold is held by governments and some individuals as a show of wealth.

When Does the Price Increase?

Gold’s position as a hedge or safe haven means that when political uncertainty comes around, the price of gold shoots up. More and more people will invest in gold as an immediate reaction to political turmoil, leading to increased demand and, of course, increased price. One example of this is the Eurozone crisis that has affected Europe since 2009. This debt crisis has wreaked havoc on the continent, but it was in 2011 when gold hit an all time high, at $1,895 per ounce. The sudden drop in value of the Euro devastated countless countries, plummeting them into debt. Investing in gold allows for bigger profits in the long run, due to its considerable stability when compared to other forms of asset.

How about a decrease?

If the price of gold is decreasing, this typically means that the stock and commodity markets are performing relatively well. With the economy in a good financial state, those thinking of long-term investments or a hedge or safe haven for the future could consider purchasing gold while the price is at its lowest. Currently, gold sits at around £33.70 per gram, offering investors the perfect opportunity to purchase gold at a lower price as a safeguard for the future, or a potential long-term investment opportunity.

While gold may not be right for every investor, those looking for a profitable investment for the long-term future could benefit from purchasing this particular commodity while it’s at a relatively low price. Direct investments with not only gold, but oil, mining and other hard assets can build up a strong portfolio for any investor.

Investors around the world choose commodities as a means of either advancing their trading strategies or hedging against investments in stocks, forex or cryptocurrencies. But which commodities are they choosing?

In this article Finance Monthly discusses five of the best, looking at the current market conditions and how things might change in the near future. But first we’ll discuss why you might want to trade commodities.

Why Choose Commodities?

Commodities usually reflect trends in the world at large, and so are a good vehicle for those with their finger on the pulse of international markets and political conditions. They are also generally inversely correlated to the stocks and shares market, making them a useful means of protection from risk in your other investments.

You could even use them to hedge against forex trades, provided you use a trading platform that gives you fast and reliable access to as many markets as possible.

And when it comes to choosing commodities to trade, these are the five that we believe you should know about in 2018:

1. Brent Crude

With tension continuing across the oil-producing world and growth predicated in emerging markets, this commodity is a good choice for the rest of this year. In fact, the Goldman Sachs Group Inc. has given Brent Crude an ‘overweight’ recommendation for the current period, meaning that they believe this is a commodity worth adding to a trading portfolio.

2. Natural Gas

High output in countries such as the US and Russia has continued to keep prices lower than they should be for natural gas, but this could change – especially towards the tail end of the year when the Northern Hemisphere moves into winter and demand increases. In fact, demand for natural gas is already outstripping supply in China, and this will surely have repercussions on the price of this commodity worldwide.

3. Copper

Disruptions in mining output, coupled with urgent demand from the electric car industry, have caused the prices of copper to soar recently. This trend may not continue with such force, but over the course of 2018 prices are expected to rise 9.7% from 2017 levels. In other words, copper is still a commodity you should definitely know about.

4. Palladium

This commodity is used in vehicle catalytic converters, and so enjoys demand from the automotive industry. As the trend of converting from diesel to unleaded petrol and hybrid electric continues, so too should the price of palladium rise. Palladium has even started to reach the price levels of platinum, giving just some indication of how in demand this commodity is.

5. Zinc

A top performer in 2016 and 2017, this base metal is beset with supply problems which could see it to another strong year in terms of price growth. Another factor is demand from the Chinese market, which looks set to continue its increase for Zinc and similar commodities.

Of course, there are other commodities to watch in 2018, but these five commodities should provide a good starting point for building a strong investment portfolio.

“Strong global market sentiment for risky assets, a weakened dollar and geopolitical turmoil in the Middle East underline the need for a long-term multi-asset portfolio”, asserts a leading global analyst at one of the world’s largest international advisory organisations.

deVere Group’s International Investment Strategist Tom Elliot, is weighing in after the IMF upgraded its estimate of global GDP growth this year to 3.9%.

Mr Elliot comments: “We have seen an unusually strong start to the year for risk assets, as global investors appear confident that a period of non-inflationary, globally synchronised economic growth is underway.

“Equities and non-core bond markets have benefited from strong inflows in recent weeks, with a slow creep upwards in core government bond yields doing little to deter enthusiasm for risk.

“The MSCI World index of developed market shares is up 7.0% since the start of January, and up 5.5% in local currency terms. The Japanese economy grew at an annual rate of 1.4% in the third quarter 2017, despite a shrinking population. And the MSCI Emerging Market index is up 9.9% since January.

Mr Elliot details three major theories that are on offer for these developments: “Firstly, the ECB and the Bank of Japan look likely to end their quantitative easing programs earlier than had been anticipated, so bringing forward the date when those central banks might also start to raise interest rates.

“Secondly, Trump’s tax cuts announced in December are worth an estimated $1.5tr over the next five years, at a time when the labour market is already tight. This raises fears of wage inflation pushing up CPI inflation.

“And thirdly, a suspicion by many FX traders that the Trump administration wants a weaker dollar as a deliberate tool for narrowing the trade deficit, to be used alongside more overtly protectionist policies. Trump denied this while in Davos on Thursday, calling for a strong dollar… ‘ultimately’.”

Mr Elliot underlines how Sterling’s strength has contributed to a return on the MSCI U.K. index of -0.2%, as dollar-earning FTSE100 heavyweights have come under pressure, and to a return on the MSCI World index in sterling terms of just 2.0%.

He goes on to say that Trump’s ‘Make America Great Again’ policy poses only a modest attack on free trade, and that it should be contextualised.

Mr Elliot states: “Bush raised tariffs on European steel imports early in his first term, and massively expanded agricultural subsidies. The sky did not fall down. We must hope that Trump’s attacks on free trade remain relatively specific and do not become broad in scope.” At the same time, Central bank policy errors remain “a key risk to capital markets”, asserts Elliot.

He says: “Anything that produces a sudden rise in core government bond yields, or cash rates, are a threat to stock markets and high yield bonds.”

“Meanwhile, geopolitical turmoil in the Middle East should be observed closely”, says deVere’s top analyst.

Mr Elliot comments: “The Middle East is developing new themes that one needs to keep an eye on, partly because of the ongoing risk of a regional clash, but also due to the young populations who are less conservative and less inclined to tolerate the status quo.”

He concludes: “As such, I strongly advise a multi-asset portfolio for the long term to offset financial volatility, centred around 60% global equities and 40% global bonds.

“Such funds predicated on this principle are available in spades and differ according to the level of risk for suitable investors, who more often than not, value certain returns over high-risk gambles.”

(Source: deVere Group)

Commodities declined in April on weakening industrial demand expectations out of China and increasing US crude inventories, according to Credit Suisse Asset Management.

The Bloomberg Commodity Index Total Return performance was negative for the month, with 15 out of 22 Index constituents posting losses.

Credit Suisse Asset Management observed the following:

• Industrial Metals decreased 3.40%, led lower by Nickel, amid weakening demand expectations out of China as measures introduced to tighten property development and investment appear to have taken effect.
• Energy declined 2.99% as US inventories of crude remained well oversupplied relative to average historical levels despite the tightening of international crude inventories.
• Agriculture lost 1.23%. Coffee declined due to reports that US stockpiles of green coffee beans reached their highest level since the early 1990s, dampening near-term demand expectations for imports.
• Precious Metals declined 0.56% after the first round of voting in the French presidential election eased risks of the country's potential exit from the Euro.
• Livestock gained 7.42%. Live Cattle increased the most on higher exports versus a year prior along with heightened cattle headcount concerns from anticipated cold and snowy weather in the US Midwest.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "Geo-politics continue to remain at the forefront of macroeconomic attention. Meanwhile, European economic data have been generally constructive as of late, and political stabilization may make it easier for the positive momentum to continue, which could be supportive of economically-sensitive commodities. Within the Energy sector, global crude oil and petroleum products inventories continue to tighten, partially due to the OPEC-coordinated production cuts, with a decision in May on the table as to whether or not to extend those cuts. The resulting higher prices has led to increased US crude oil production, though not enough to fully offset the production cuts or increased demand. Thus, there are some positive signs indicating the tightening may have begun as the fundamentals underlying these markets continue to slowly improve."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "The National Oceanic and Atmospheric Administration signaled the possibility of a return to an El Niño phenomenon in late summer. Resulting weather events may affect the key production cycle for agricultural crops, particularly grains within the US, which may cause prices to rise.  Separately, the March Jobs Report indicated that the US unemployment rate fell to its lowest level in almost ten years while wages continued to gradually increase. These statistics are suggestive of a tightening labor market and possible progress towards the US Federal Reserve's goal of sustainable maximum employment. However, the Fed still maintains its forward guidance of only two additional rate hikes this year. This slow normalization of interest rates coupled with rising wage pressures may increase the probability that inflation overshoots expectations."

(Source: Credit Suisse AG)