Silver has become one of the most sought after commodities among retail investors. Despite a sharp decline in silver prices on Monday it still remains by far the best-performing commodity in 2011.
Prices of the precious metal had risen by more than 140 per cent over the last one year, from Rs 27,000 per kilogram in April 2010, to close at Rs 66,000 per kilogram in April this year. In the last one month, prices had increased by almost 15 per cent, from Rs 55,000 per kilogram to Rs 66,000 last week. Moreover, global cues, like a weakening dollar and the continuity of the quantity easing programme of the US government, had raised silver prices in the domestic market. On April 27, Fed Chairman Ben S Bernanke hinted that the US central bank would maintain monetary stimulus and keep interest rates near zero to bolster the recovery. As a result, silver prices surged by 3.60 per cent to Rs 71,290 a kg in futures trade on April 28.
Lured by high returns, retail investors are still making a beeline to buy silver, hoping the metal’s prices to go up further. This time, it was not only the market-savvy stock investors, but also the salaried class and small time investors who are participating in the silver boom.
Silver dealers say sale of bars has increased by almost 20 per cent over the last one month. Traditionally rural areas are the biggest consumers of silver bars, but now, it is the urban market that is fuelling the demand for the metal. In May 2010, HDFC Bank started retailing silver bars in 50gm denomination and sold over 95 kg. As of March 31, the bank had sold over 700 kg and planned to launch 500gm and 1 kg bars.
“There has been a significant increase in demand for silver over the last six months. As the demand grew for larger denomination we launched the 100gm bars in February. We are also considering to introduce higher denominations in 500gm and one kg bars,” said Surinder Chawla, head, retail liabilities product group, HDFC Bank.
“We do view rural India as a lucrative market for silver bars and we are in the process of expanding our silver sales in rural branches,” added Chawla.
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“Sale of silver bars has increased by almost 20 per cent in the last one month, as it has generate significant interest from the salaried class looking for safe investment havens,” said Abhishek Bhatter, partner, Bhatter Silver, a leading Kolkata-based retailer. India imports about 2,500 tonnes of the metal every year. This time scrap sale or resale of silver bought at a lower rate an year back is adding to the silver inventory.
“The demand for silver is pretty good, as there are expectations that its prices could go up further, especially by individuals. It has outperformed most of asset classes. ,” said Rajan Venkatesh, managing director of ScotiaMocatta, a division of Scotiabank, one of the largest sellers of precious metals among banks in India.
However, there had been doubts on how long the silver rally would last. Industry experts had predicted last week that the bubble could burst any time. “It seems that this is a manipulation, and prices may crash any day,” Bhatter had said on April 28. Experts also attributed the spike in silver prices to massive short position held by several major investment banks. For ordinary investors, the attractive returns seem to be the only silver lining , but the decline in prices on Monday could set off an alarm among small investors.