The unsatisfied demand for silver, following the economic crisis world over and especially in Europe, has led to a sharp increase in prices of this white metal. While production bottlenecks due to a rise in mining costs have added to supply constraints, factors such as increasing industrial applications have created fresh demand for this white metal. In the last six months alone (October 25, 2010 to April 25 2011), silver prices have more than doubled in the domestic market.
In the international markets, spot silver was quoted at $48.84 an ounce and the U.S. silver futures at $49.80 on April 25, the highest since 1980.
On January 1 this year, U.S. silver futures were quoting at $30.94 an ounce. The rise in prices since January is thus 60.9 per cent.
The weakening of the rupee and rising inflation have further contributed to the high prices in Indian markets. The bullion markets here track overseas prices. Silver (0.999 fineness) was quoted at Rs. 75,020 a kg on April 25, 2011, in Mumbai against Rs. 47,210 on January 1, 2011, the increase being 58.9 per cent. During this period, standard gold has risen by only 6.53 per cent from Rs. 20,645 per 10 gram to Rs. 21,995.
Silver was quoting around Rs. 35,500 a kg in Mumbai on October 26, 2010. At Thursday's price of around Rs. 73,105, the increase in one year is more than 100 per cent. .
In the last 10 years, silver prices have increased more than 10 times, says Jayantilal Challani, President of Madras Bullion Association. In 2002, it was priced at Rs. 7,000 a kg and went up to Rs. 75,000 this week.
Of course, Mr. Challani attributes the rise to factors such as increase in industrial usage, hedging, dollar depreciation and speculation. Industrial usage has gone up by more than 60 per cent and it is one- way transaction with no recycle happening. There is heavy demand for silver in China and Africa as the industrial usage in these regions is high. There is nearly two to three grams of silver in every mobile instrument. The increasing usage of silver in the electronic industry and in the aerospace segment has also created a demand for silver in global markets.
Hedging
Similarly, with the dollar depreciating in the world currency markets, most of the financial institutions across the world, which used to convert their currencies into dollar, have started to convert them into bullion (gold and silver). This has been happening heavily in the European countries especially in European banks.
Similarly, Italian companies have started to use bullion for hedging purposes. Mr. Challani also feels that there is very limited recycling of silver taking place in the retail market. It has been only a one-side sale and as a result there is heavy demand for new silver.
Generally if one kg of gold traded nearly 30 per cent comes back as resale, while if one kg of silver is sold only 5 per cent comes back as resale. There is thus heavy demand for silver but supply is very limited.
Globally, the quantum of silver used for industrial purposes is forecast to rise to 665.9 million troy ounces by 2015, a 36 per cent rise from 487 million ounces in 2010, according to a report released recently from the Silver Institute, the Washington-based international association representing miners, refiners, fabricators and wholesalers of silver and silver products (a troy ounce makes up 31.1 gram). Silver prices went up by a steep 78 per cent in 2010 following strong investment demand and rebound in the fabrication sector, the report said. World investment surged by 40 per cent last year to 279.3 million troy ounces, resulting in a net flow of $5.6 billion into silver, which is almost double the figure of 2009, it said.
“It is all hype” says N. Anantha Padmanabhan, Managing Director of NAC Jewellers, Chennai. He says analysts have predicted that silver will touch an all time high of Rs. 1.50 lakh a kg this year.
There is also panic buying and this has led to heavy demand for silver and consequently resulted in acute shortage of the metal in the Indian market. It is all a chain reaction, he feels.
Mr. Padmanabhan said the demand for silver had gone up since there is increasing industrial use. The fear is also because a few silver mines in Africa have collapsed.
In India, some traders expect the bullish trend to continue.
According to G. R. Ananthapadmanabhan, Managing Director, G. R. Thanga Maligai, a leading jeweller in the South, there will not be much correction at this moment as the demand is quite high. He said demand for this metal was good in Tamil Nadu, Andhra Pradesh and Karnataka and there was continued buying by the middle-class people both in the form of vessels and silver bars. Besides, corporates and dealers were buying silver coins. For the next two years, prices will be only in the positive territory, he said.
Though there may be some corrections in the near future, eventually it is felt in trade circles that prices will rule high in the long-term.
