Declining silver prices encourage physical buying

10 Sep, 2008, 1818 hrs IST,Devangi Joshi, ECONOMICTIMES
MUMBAI: While a decline in gold prices continue to attract traders' attention, silver, the most preferred precious metal after gold, has lost more than 30 per cent over the past three months. Silver futures on Multi Commodity Exchange (MCX) are trading below Rs 20,000 per kg, having fallen more than Rs 5,000 since June. The slump has increased demand for the white metal on the physical market.

Internationally, prices have shed more than $3 per ounce (31.10 gms) at $11.13 as reflected by the benchmark December contract on COMEX (a division of New York Mercantile Exchange). Comex gold futures, on the other hand, have declined by nearly 13 per cent over the three months since June.

A rising dollar with falling crude oil prices has reduced gold's appeal as a hedge against inflation in turn affecting silver, which, though more volatile, tracks the yellow metal. The dollar index, which measures the greenback against a basket of six currencies including euro, yen and Swiss franc, has appreciated 9% to 77.38 over the same period.

Sentiment in silver has been beaten down further by sluggishness across the base metals complex. Besides being a precious metal, silver also has significant use as an industrial commodity. Around two-thirds of silver fabrication finds its way to the photographic and industry sectors.
Even as the negative sentiment continues to put downward pressure on prices, a fall towards Rs.18000 - 17500 per kg is seen as a good buying opportunity. " For the shorter term we see prices trading in a Rs. 18,000 -20,000 range. Both these levels could present opportunities to go either long (buy) or short (sell) the metal," said Kishor Narne, research head, Anand Rathi Commodities.

"With such a deep plunge in prices, physical demand for silver is seen outperforming that for gold," said Suresh Hundia, president, Bombay Bullion Association. According to him, for Jan-July 2008, nearly 56 tonnes of silver were imported. However, for August, imports more than doubled to 116 tonnes. " Considering the demand, we expect nearly 300 tonnes of silver imports in the month of September," he said.

According to Mr. Narne " Silver is not entirely seen as either a precious or a base metal. Due to the popularity of digital technology, silver's usage in the photography industry is experiencing a steady decline. On the other hand, industrial usage of gold is on a rise with an increase in its use in making of telecom equipment and semiconductors."

Unlike gold, which attracts long-term investment being perceived as an alternate currency, investment in silver is more speculative in nature.