Explained: Silver prices may touch Rs 1 lakh, should you invest?

Silver prices have been on a steady rise in 2024, reaching Rs 81,313 per kg on April 8. This follows a 7.19 per cent gain in 2023. Brokerage firm Motilal Oswal is very positive on silver's future, predicting prices to reach Rs 1 lakh (Rs 100,000) and potentially even Rs 1.2 lakh (Rs 120,000) in the medium to long term.

On a year-to-date basis, silver has gained more than 11% till now while gold rallied nearly 15%.

Motilal Oswal has cited several factors driving silver prices, including strong demand from the industrial sector (electronics, solar) and its role as a safe-haven asset during economic uncertainties.  Geopolitical tensions have increased risk premium in the market since 2020. In 2022, the Russia–Ukraine war, last year the conflict between Israel and Hamas and other tensions as well as geopolitical uncertainty, has increased market volatility and pushed demand for silver as a safe investment. Silver has also benefited from robust industrial demand in sectors such as electronics, solar energy and healthcare.

"We continue to be strongly positive in Silver over the next few months, but will it be a straight upside or with volatility is difficulty to time. We advise to be invested in silver and keep adding on dips towards Rs. 75,000 for a medium to long term upside towards Rs. 92,000 followed by Rs. 100,000," said Navneet Damani, Head Research- Commodities & Currencies at Motilal Oswal. 

Silver performance table- MCX 

Here are the key drivers behind silver's recent move:

Silver's unique value proposition lies in its ability to cater to two distinct yet interconnected markets:

Industrial Metal: Silver's excellent thermal and electrical conductivity make it an irreplaceable component in various industries. It plays a crucial role in electronics (motherboards, electrical contacts), photovoltaics (solar panels), and automobiles (batteries, electrical wiring). As these sectors experience growth, particularly in the fast-paced renewable energy space, the demand for silver is projected to rise significantly.

Global silver demand is forecast to reach 1.2 billion ounces in 2024, which, if achieved would be the second-highest level recorded. Stronger industrial offtake is a principal catalyst for the rising global demand for the white metal, and the sector should hit a new annual high this year.

Data from silver institute suggest that, Global silver demand is expected to rise 1%, pushed higher by the continued strength of industrial end-uses and a recovery in jewelry and silverware demand. Silver industrial fabrication is forecast to post a 4% rise in 2024 to a record 690 million ounces (Moz), building on the all-time highs achieved last year. In line with the trend in recent years, the photovoltaics (P.V.) and automotive industries will remain key drivers of growth this year.

Precious Metal: Silver retains its status as a precious metal, offering a hedge against inflation and market volatility. During economic uncertainties, investors often turn to precious metals like silver to safeguard their wealth. Silver's historical price movements often exhibit a positive correlation with gold, albeit with a higher degree of volatility

India's silver story: A Domestic Demand Boost

India, the world's largest silver consumer, plays a crucial role in the global silver market. The Motilal Oswal report highlights several factors contributing to rising domestic demand for silver:

Government initiatives: The Indian government's focus on renewable energy and electric vehicles creates a significant boost for silver consumption in these sectors. Government policies promoting solar panel installations and electric vehicle adoption are expected to drive up silver demand in the coming years.

Growing qffluence: Rising disposable incomes in India are leading to increased demand for silver jewelry and utensils, traditionally a significant segment of silver consumption in the country. As the middle class expands, the demand for silver for ornamental purposes is projected to rise further.

Investment awareness: Growing investor awareness about alternative investment options like silver could lead to increased silver purchases for portfolio diversification. With traditional asset classes like real estate and fixed deposits offering lower returns, silver's potential for price appreciation could attract more investors.

"Fed’s interest rate decisions and China’s recovery are two big factors that market is currently discounting and could continue to support prices in the long run. It is important to note that Gold has seen a significant rally and silver has also now started to catch up its pace. The recent rally is coupled with the up move in industrial metals. Silver being a hybrid metal (Precious + Industrial) and a high beta commodity, the pace on either side is always higher than Gold; we believe this year we could see silver matching or outperforming Gold’s pace," said Manav Modi, bullion analyst at Motilal Oswal. 

For investors interested in participating in the potential silver price surge, here are various investment options:

1. Physical Silver: Purchasing physical silver coins or bars offers direct ownership. However, storage and insurance costs need consideration.
2. Silver ETFs (Exchange Traded Funds): These ETFs track the price of silver, allowing for participation in price movements without physical storage hassles.
3. Silver Futures: Experienced investors can utilize silver futures contracts for potentially higher returns, but these also carry higher risks.