A huge crash in silver prices should have led to a revival in demand, but investors seem to be staying away. And this has raised a fresh worry ahead of the festive season.Silver refiners and bullion dealers are seeing their inventories build up as new investment demand for the metal weakens. The situation comes even as silver prices have dropped by more than 40% from their January peak of over Rs 4 lakh per kg. Uncertainty over a possible breakthrough in the US-Iran war and concerns about subdued industrial demand have added to the pressure.In Mumbai’s spot market, silver was trading at Rs 2.35 lakh per kg earlier this week.
Silver Demand Weakens
Traders and analysts have said that the slowdown in investment demand can be seen across silver exchange-traded funds (ETFs), bars and coins. Investors who bought the metal when prices were significantly higher are now sitting on substantial losses, making them hesitant to make fresh purchases despite the steep correction in prices!Also Read | A couple sold gold for Rs 20 lakh to buy a home, another family got Rs 80 lakh for a US degree and business: How Indians are unlocking value of idle gold sitting in their lockers“Investment demand for silver ETFs, bars and coins has come down. Internationally, prices are unlikely to cross $100 per troy ounce immediately unless the US-Iran war comes to an end. Silver prices are undervalued,” Chirag Sheth, global business head, Public Gold Bullion (SG) Pte told ET. “The continuous war between US and Iran has impacted the solar industry, semiconductor industry and EV industry where silver is used.“
Massive stockpiling of silver
The weak demand is also creating an inventory problem for domestic players. Indian bullion dealers and refiners have reportedly placed orders for around 2,000 tonnes of silver, which is currently in transit. The additional supplies have raised concerns over a further build-up in stocks. India imports around 7,000 tonnes of silver every year.“With no new investors coming in and no immediate signs of prices going up, refiners and bullion dealers are facing a problem internationally as well as in domestic markets,” said James Jose, president, Precious Metals Refiners Forum.
Silver’s Spectacular Fall
Silver prices have fallen steadily over the past seven months, following an extraordinary rally that pushed the metal more than 300% higher year-on-year. In January, silver crossed Rs 4 lakh per kg on the Multi Commodity Exchange for the first time.“The market is still digesting the aftermath of the speculation-driven frenzy, and this may be prompting investors to stay away after many of them incurred significant losses,” said Carsten Menke, head, Next Generation Research, Julius Baer told ET.The outlook for industrial demand is adding to the pressure, with consumption expected to weaken. “A shift to cheaper alternatives, such as aluminium and copper, has started, and the growth outlook for Chinese solar module makers, which are the biggest industrial users of silver, is not as strong anymore,” Menke said.The ongoing US-Iran war has added to the negative sentiment surrounding silver. If the conflict continues for an extended period, investors may remain cautious. At the same time, expectations of weaker industrial consumption could make a rapid rebound in silver prices difficult.Despite the sharp fall, some long-term investors are once again looking at silver as a way to diversify their portfolios.“The market has taken full cognisance of the marked decline in silver prices in recent days. Some investors have shaved off their allocation, while others have prepared for fresh acquisition depending on their views and goals,” said Nilanjan Dey, partner, Wishlist Capital.Dey said investors who have a time horizon of five years or longer may look at buying silver ETFs in a staggered manner instead of putting in a large amount at one go. Monthly or fortnightly investments could help spread out the purchase price and reduce the impact of short-term price movements.For first-time investors looking to add precious metals to their portfolios as a diversification from equities, ETFs can provide exposure without the need to hold or manage physical silver. However, Dey warned that investors with a shorter investment horizon should not assume that the recent decline automatically makes silver an attractive buying opportunity.(Disclaimer: Recommendations and views on the stock market, or any other asset classes or personal finance management tips given by experts and analysts are their own. These opinions do not represent the views of The Times of India.)
