Silver price competes with gold rally as industries fuel demand



Silver is quickly catching up with gold’s rally this calendar year and, in fact, has outperformed the yellow metal since the start of this fiscal year.

In the Indian spot market, silver has become the most expensive since September 2013. On the MCX, September silver futures are trading above Rs 53,000 per kg. At Zaveri Bazar in Mumbai, the metal closed on Wednesday at Rs 52,195 per kg (Rs 840 more expensive than Tuesday) – the highest in seven years. The record silver price is Rs 75,000 per kg, recorded in April 2011.

With a Goods and Services Tax of 3%, the wholesale price of silver is Rs 53,760. The price of gold in the physical market closed at Rs 49,053 per 10 grams. On the international market, silver was trading at $19.30 per ounce and gold at $1,807.93 per ounce.

In India, the price of silver has risen 33.2% since the beginning of April and only 7.4% in July. However, since the start of the year, the price of gold has jumped by 25.5% and that of silver by 11.9%.

In the April-June quarter, 2,100 tonnes of silver were imported, matching the figure a year ago and nearly double that of the March quarter, according to a market expert. Gold import was just over 10 tonnes in the June quarter.

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Gold had performed well, but silver lagged due to weak industrial economies. More than half of silver production is for industrial purposes, led by the solar sector. Industrial commodities, such as base metals, have seen a strong rally over the past three months and the price of silver has also started to reflect that rally now. The gold/silver ratio, which represents the relative price movements between the two, was 134 last February, reflecting weakness in the white precious metal. But now it has improved to 93-94 and that figure is likely to decrease further as silver strengthens.

Ajay Kedia, Director of Kedia Advisory, said: “We have already seen the price of gold soar due to Covid-19 concerns and the threat of a recession. Silver has a double benefit – it has the properties of both ingot and base metal. With the global stimulus, which should help generate growth in industrial production and economic activities, silver will be supported. The demand for silver is closely linked to industrial production, accounting for 50% of its demand.

Silver is also known as “poor man’s gold” when interest in precious metals increases (as it does now). Many investors historically diversify some of their gold purchases with silver.

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“Silver can outperform gold as it is a smaller market and a moderate relocation of investments in it can lead to a significant price spike. A break above $20 can move the price around $26 internationally,” Kedia said.

The Silver Institute, a leading body for the silver industry, in its latest study released late last week, said, “Retail and institutional inflows into ETPs (exchange-traded products) of money have been impressive this year. As of June 30, global holdings hit a new all-time high of 925 million ounces or 26,223 tonnes, or about 14 months of mine supply.

First-half 2020 ETP growth of 5,556 tonnes was well above the highest annual inflow of 4,224 tonnes set in 2009. North American-listed funds have accounted for approximately 90% of ETP inflows since March.

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