Price Drop Makes Silver More Attractive in India

MUMBAI – Gold, which is the hot favourite amongst investors in India for purchase during the gold-buying festival on May 6th, was forced to give way to silver, given its massive slump in price.

Silver coins tumbled by $ 313.34 to $ 1,410.15 for buying and $ 1,432.43  for selling of 100 pieces. The precious metal, which has been up 150% since August, has turned out to be one hot commodity.

“This year, traders and jewellery houses have bought a large number of coins in 100-lots, since many corporates have decided to present a silver coin to their employees along with their annual increment and bonuses,” said an official of Sonawala Traders’, which is a bullion house dealing in commemorative pieces.

“It is a new trend with most companies who are doling out their annual payments this month.  Since the price fall of both precious metals has been huge over the last week and since gold coins are still quite unaffordable as a give-away present, bosses are giving smaller denomination silver coins along with the annual salary perks,” he added.

On Friday, May 6, silver closed at $ 1,297.54 per kg after a correction of $ 100.7 on Thursday, as compared to the previous close of $ 1,398.62. Traders said that on April 25, silver had touched an all-time high of $ 1,678.70.

Silver’s dramatic fall last week has helped consumption scale up tremendously. Traders said sentiment in silver remained bearish as silver in the overseas markets, which sets the price trend in the domestic markets, recorded its biggest weekly plunge since 1975.

Though both silver and gold prices came under a massive selling pressure at the domestic bullion market on consistent offloading by stockists and speculators, traders said investors diverted their money to silver on Akshaya Tritiya, a day generally reserved for buying small bars or biscuits of gold as an auspicious beginning to the festivities.

“The falling margin in precious metals turned out to be a boon for traditional buyers,” said Someshwarbhai Zaveri, bullion trader in Mumbai.

By the end of trade on Friday, silver prices nose-dived by $134.3 to $1,190.82 per kg and gold fell by $5.03 to be pegged at $495 per 10 grams.

“The active purchase of both metals by consumers, despite the slump, is in the hope that both metals will do well in the coming days. However, silver purchases shined this year, as compared to gold,” said bullion retailer Nanikseth Toradmal.

According to traders in Opera House, which is Mumbai’s main gold trading hub, gold prices in the city have fallen drastically overnight. Prices of precious metals on the Multi Commodity Exchange of India Ltd were even lower, they said.

“If there is a correction, demand for gold jewellery will increase further as we are set to enter the wedding season,” said jeweller Shashikant Morea, who operates out of the Opera House area.

Analysts are attributing the decline in the price of precious metals to appreciation in the value of the dollar against the Euro and profit booking by speculators.

Silver ETFs

Traders said that several Indian mutual fund houses are planning to launch silver ETFs as soon as regulatory authorities give them the go-ahead.

Indians typically buy gold and silver jewellery or small bars, but with prices jumping, demand for smaller items of jewellery has been replaced by growing interest in investment products such as silver exchange traded funds (ETFs).

“Over the past one year, around 55% was the return on silver, much higher than even gold. While gold ETFs are easily available and actively traded on the stock exchanges, silver ETFs have yet to make their debut. But the talk is it could happen any time soon,” said a bullion analyst at an investment house here.

He added that ETFs take care about concerns such as storage and purity, which are still a major bug-bear in India.

Prithviraj Kothari, president of the Bombay Bullion Association said that many traditional Indians continue to prefer to hold gold in a physical state. “The penetration of gold ETFs is still not that high. Silver is generally considered more of an industrial metal, and the inclination to hold it physically is less. So, the scope for silver ETFs is quite high,” he said.

To match the investment demand,  mutual fund houses across India are planning to launch silver ETFs as soon as the regulatory authorities give them the clearance.

The Securities and Exchange Board of India (SEBI), which is the country’s capital market regulator,  regulates gold ETFs. The latter are currently traded on the National Stock Exchange.

There is a huge debate between regulators as to whether silver ETFs should be overseen by SEBI or the commodity markets regulator, the Forward Markets Commission. And it is this debate that is slowing things down.

With physical holdings in silver ETFs globally at a high of 14,000 metric tonnes, the Bombay Bullion Association is also said to be looking at launching both silver and gold ETFs.

Chiranjeeva Mehta at broking and investment firm Quantum Asset Management noted that silver ETFs could provide efficiency, convenience and ease in investments.

“These funds will go a long way in making a more efficient and convenient investing choice for many investors who are not sure about the purity of their precious metal,” he said.

Noting that silver has two diametrically opposite forces determining its price: the demand as an industrial metal (lower in a slowing economy) and demand as a safe haven, Mehta said that after getting de-linked as a form of currency, silver is being used more as an industrial commodity, currently at around 73%.

“This makes investments in silver, in some sense, a factor of global economic growth,” he added.

Underscoring the point, precious metals analyst Vijay Bhambwani said silver has been gaining prominence as an investment vehicle.

“The performance of the metal has been far superior to gold and even equities in the past few quarters. Many returns-conscious investors  want to participate in the phenomenal bull run. Unfortunately, the investment process in silver in India is far from efficient,” he added.

Mehta added: “Silver is voluminous and, therefore, more difficult to store. Traders prefer to hold units in the dematerialised form.”

He added that the costs for storing silver are higher than those for gold. Analysts have said that the most widely-traded silver ETFs in the global market are Barclays silver ETF (also called iShares Silver Trust), traded on AMEX, and PowerShares DB Silver fund.

Traders added that moves by the CME to curb speculative buying with three increases in margin requirements at the start of May have also helped cool the metal’s run in the international market.

Incidentally, in India, trading in e-silver is allowed till 11.30 pm and provides ample opportunity to investors to enter and exit at any point of time during the day. Till silver ETFs appear in the market, e-silver is catering to the investors’ huge appetite, traders added.


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