Family silver up for sale

PRECIOUS METALS

India may sell up to 930 tonnes of precious metal in the domestic market.

The sale of silver by the government appears to be on track for a marginal increase, according to a recent study by the Silver Institute. There is strong evidence that Chinese and Russian sales have held up in 2006, probably due to the attractive price level. In addition, India may sell up to 30 Moz (930 tonnes) of the precious metal in the domestic market.

We have seen central banks selling gold in the open market. The Silver Institute projects sale of silver by governments. Chinese and Russian sales could not take place as prices were high, meaning that buyers were not willing to pay a high price for silver.

The sale of 930 tonnes of silver by the Indian government, as mentioned in the report, was contracted earlier but could not be delivered, as per market information.

A common investor might wonder as to the silver that the government is selling? The Indian government has a huge stock of silver coins which form part of the pre-independence rulers' currencies that were deposited with the Union of India after the country became a republic.

Most of these coins were then converted into silver. The government, it is estimated, still has 5,000 to 8,000 tonnes of silver so obtained. It is believed that some of this silver was sold in the market to fill the budgetary gaps in the last quarter of the financial year.

So 930 tonnes of the last sale contract and another over 1,000 tonnes of silver is expected to be sold by the government during the current financial year.

The total new supply of silver from government sale and import is expected to be 4.5 tonnes during the current year. This does not take into account the silver imported for export purpose. A few years ago silver coins were in demand but because of quality issues people moved away toward gold coins. Though now quality complaints for silver coins are fewer, the trend is to go for gold coins. Availability of small denomination coins is also the reason sighted for this.