Silver prices at 26-year low in relation to gold, should investors buy?

Experts and analysts believe that prices of silver may give healthy returns in the latter part of 2019

The price of silver in comparison with the price of gold is at a 26-year low. The ratio of gold price to silver price is currently around 90, the highest after March 1993. A higher ratio indicates that silver is much cheaper than gold. If silver is so cheap relative to gold, should investors consider buying the precious metal?

The ratio, calculated by dividing the current price of gold by the price of silver, indicates how the two metals are performing against each other.  

     

“Despite the persistent challenges that silver has faced, we remain cautiously positive about the price outlook for the rest of 2019.” The consultancy believes that the lacklustre macro-economic backdrop will favour renewed investment into gold, which in turn should also benefit silver," said Philip Newman, Director of Metal Focus.

The reason for the cautious approach is that while gold may see safe haven buying, half of silver’s demand comes from industries, a segment that itself is subdued following the re-emergence of a trade war.

Metals Focus states in its just-launched Silver Focus 2019 report, “Year-end, we think prices will struggle to surpass $18, a level not seen since the third quarter of 2017. On annual average basis, we see prices averaging $15.60.” In 2019 so far, silver price have averaged $15.23 and ounce.

In other words, investing in silver could give 20 per cent returns in 2019. India’s silver investment market size was 1,680 tonnes in 2018 making India the world's largest investor in silver.

“Silver’s fundamental as precious metals is turning good though for some more time investors have to live with high ratio of above 80. Base metals looking subdued impacting silver demand to that extent,” said Naveen Mathur, head of commodities and currencies at Anand Rathi Commodities. He added that he did not see big returns from silver in the near future.

India has emerged as a big investment destination for silver. So far, its biggest consumer segments were jewellery and silverware. Although both have shown a marked a positive growth and have contributed towards keeping the overall global demand positive, silver demand grew at a handsome 30 per cent in India.

According to Metal Focus’ Silver Focus 2019 report, “2018 saw strong demand for 1kg and 5kg bars, compared to 15kg and 30kg bars in 2017, which suggests that small retail investors have returned to the market.”

The demand for slver in India is price sensitive and traditional investors also keep a portion of investment for trading or buying low and selling high.

Debajit Saha, senior analyst for India and UAE with GFMS TR, another global research firm, said that “India’s import in March quarter was 1310 tonnes which is higher by 9 per cent but in February silver price increased to Rs.40, 000 per kilo, investors offloaded 180 tons silver (bought at a little lower price and booked trading profit) resulting in higher domestic supply.” He is very optimistic about silver demand further increasing in June quarter."