Silver on Fire in India

MUMBAI  – Despite a 100% jump in price in just over six months from October 2010, demand for the silver metal refuses to die in India.

Traders and analysts insist that silver demand will climb further this year, as investors across the country pick up on their purchases sensing an even bigger price-hike around the corner.

On October 26, 2010, silver was quoting around $ 799.96 a kilo in Mumbai. At Thursday’s closing price of around $ 1,647.36, the increase is over 100%, in just six months.

“Silver prices are set to extend a record rally,” said Ketan Shroff, managing director of Pushpak Bullions in Mumbai. “Consumers are rushing in to grab more for the forthcoming Akshaya Tritiya festival,” he said.

Akshaya Tritiya falls on May 6 this year. It is considered an auspicious day, the golden day of eternal success. Many bullion houses are offering their customers an advance booking on the white metal to neutralise the impact of rising prices.

Though gold coin sales have picked up over the last week in tandem, jewellers insist that there is huge demand from families who have been known to the jewellery house for decades. The weakening of the rupee and rising inflation have further contributed to the high prices.

The bullion markets here tracks overseas prices. Silver (0.999 fineness) was quoted at $ 1,691.34 a kilo on April 25, 2011, in Mumbai, as against $ 1,064.37 on January 1, 2011, revealing a jump of 58.9%.

During this period, standard gold has risen by only 6.53% from $465.491 per 10 gram to $ 495.984 for every 10 gram.

“The white metal has beaten gold in terms of returns given to investors both last year and this year so far. Gold may have the glamour, but silver has the momentum right now,” Anjani Sinha, chief executive officer of the Mumbai-based bourse, the National Spot Exchange, said to a news agency.

While production bottlenecks due to a rise in mining costs have added to supply constraints, factors such as increasing industrial applications have created a fresh demand, she added.

Demand is expected to jump by 10% to 15% from the current level of about 3,000 tonne a year, she further said.

Traders pointed out that silver trading on the National Spot Exchange has increased by around 20% in the past month. Moreover, they added, the ratio of gold to silver has dropped to the lowest level since September 1980. 

Silver futures

At the Multi Commodity Exchange, silver for delivery in May shot up by 3.60% to $ 1,607.24 per kilo, with a trade volume of 7,023 lots.

It had ended at $ 1,551.57 per kilo in the previous session. Similarly, the metal for delivery in September gained 3.59% to $ 1,633.30 per kilo, with a business turnover of 287 lots.

The white metal for delivery in December spurted by 3.52% to $ 1,652.89 per kilo, with a turnover of 114 lots.

Analysts maintain that the rally in silver futures was mostly driven by a firming trend overseas, after the dollar weakened further.

In the last 10 years, silver prices have increased more than 10 times, according to Jayantilal Challani, president of the Madras Bullion Association.

He attributes the rise to factors such as increase in industrial usage, hedging, dollar depreciation and speculation. He noted that there was heavy demand for silver in China and Africa, “as the industrial usage in these regions is high. The demand is set to surge here too.”

Silver to jump

Traders insist that sentiments will continue to remain bullish with mounting inflation around the globe and Europe’s sovereign debt crisis prompting investors to seek a store of value.

“In global markets, gold rose by 0.1% to $1,488.68 an ounce and silver rose by 0.9% to $43.37 an ounce, the highest level since 1980,” said Mohan Seth, an analyst with a brokerage firm here.

He added that besides hectic buying by stockists and jewellers for the upcoming marriage season, many investors were shifting their funds from the melting stock markets.

Bank premiums on silver have also doubled over the past five days to 28 cents an ounce. An analyst with a foreign bank said: “Every three out of five calls we receive in our dealing rooms relate to queries on buying silver. Demand will rise further.”

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