Silver lining? Metal at record levels, but discount too is high

A small price correction is seen where demand is expected to return

Silver prices on Thursday hit a record high in Mumbai’s spot market, closing at Rs 75,869 a kg.

However, even at higher prices, the white metal is quoting at a sharp discount to the futures and cost of import due to lack of demand.

The spot cash market is quoting silver at a discount of Rs 5,500 per kg to the futures price on the MCX, while the discount to the landed cost of silver is Rs 3,000 per kg. Even at such a high discount, there is no liquidity (demand).

Chirag Thakkar, director, Ahmedabad-based Amrapali group, said “the market is quoting at a discount of Rs 3,000 to its landed cost. Now the price needs a small correction and at a lower price, demand will come back”. He sees Rs 65,000-68,000 per kg as the base support price but it may not fall to that level and demand can be expected even at Rs 70,000. On the higher side, “prices can move up to Rs 85,000 per kg.”  

Silver prices are rising following gold prices. Global uncertainties on the economic and geo-political front and an increasing number of countries considering de-dollarisation are leading to higher demand for gold. Surendra Mehta, national secretary, Indian Bullion and Jewellers Association, said: “Countries that have a higher share of gold in their forex reserves will succeed in de-dollarisation and hence central banks’ gold demand is increasing.” 

In 2022, global central banks purchased 1,136 tonnes of gold (against 450 tonnes in 2021). In the quarter ended December 2022, they added 417 tonnes to their reserves, and another 126 tonnes in the first two months of 2023.

Even the Reserve Bank of India added 32 tonnes in 2022 and in March 2023 another 3 tonnes.The China-Taiwan tussle, as well the US banking crisis, is adding to the worries.

According to Mehta, the silver price may see a small correction to $24.5 per ounce (one ounce is a little more than 31 gm) from around $26 in international markets. However, after correction, the price could rise to $29 and if this level is crossed decisively then in India the silver price may go up to Rs 1 lakh per kg and even higher.

On the MCX, June silver futures were trading at Rs 77,300 per kg on Friday evening in opening trade. However, the prices later fell sharply to Rs 75,300 per kg as international prices also fell to around $25.35 per ounce.

The total open interest in silver on MCX futures is 20,135 lots. One lot is equal to 30 kg of silver.Looking at the top 10 long (bullish) and short (bearish) positions, 13,117, which is 65 per cent of the total, are long or bullish while 5,777 lots of the top 10 positions, or 28.7 per cent of the total, are bearish positions, according to the MCX data. Given that bullish positions are more than double the short positions, it indicates that traders are bullish. 

Hence, some profit-booking by traders is not ruled out, and that is leading to a correction.