Silver Provides Silver Lining

[Dr. Sanjiv Agarwal]

We are witnessing the huge appetite for investments in gold and silver by investors across the globe for the simple reason that investment in such commodities have appreciated handsomely as compared to other asset classes, particularly in last few years. 

While gold appreciated by over 60 percent in last three years, the prices of silver have shot up surprisingly by over 220 percent, though it has been marked up with volatility.  As reports suggest, silver has the tendency of moving upwards with economic growth and has an increased industrial consumption. Such phenomenal rise in silver was earlier witnessed in 1993, 1997 and 2006 also when it outperformed appreciation in gold. If we look at prices in last decade, while BSE sensex rose of by 360 percent and gold by 380 percent, silver saw appreciation of over 660 percent in last ten years. 

Industrial countries have been net importer of silver, particularity countries likeChina. This is one of the main reasons for rise in silver prices. Sliver is also seen as an alternative or proxy to gold investment. It also serves as a hedge against inflation but of course, second to gold. The crises of middle east and European debt situation  in also responsible for such prices behavior. Though the appreciation in silver prices could have been faster than gold in last one year,  yet it remains next to gold to provide cushion against risks. Moreover, volatility would be witnessed more in sliver than gold. 

  The rising prices of silver  suggest thatIndiashould move on the path of introducing silver funds (just like gold ETFs) which would bring silver at today’s prices within the reach of masses and retail investors. World  over, silver ATFs are doing well and can be a good platform for investors who do not want volatility.  Going by the present experience of silver going upto over Rs 75000 per kg in last month and now  ruling at around Rs 55000 - Rs 60000 a kg, it is felt that the prevailing prices may see a further correction of  5-10 percent but price crash does not seem to be obvious. Silver has to be invested in on long term perspective as any short term call could prove to be fatal.  Investing in sliver would make sense if made from a long term perspective as short term prices in silver could suffer  from speculation, volatility and excessive profit taking/ short selling on occasions. 

It appears that silver may consolidate around Rs 55000 which is the current resistance level with individual demand likely to pick up in next festive season alongwith silver ware. It may again get steady in next few months. Investors in silver should continue to stay invested with long term perception in mind. The price of silver has started recovering and investment demand will be the key driver. It is expected that  eventually gold and silver will prove to be the only true safe haven for savings….. in long run.