Global turmoil hits silver

Global credit crunch and an appreciating rupee have pulled down domestic prices of silver despite a growing demand from jewellers for the white metal.

The industrial demand for the metal, which rose by 5 per cent year on year, has also not been able to arrest the fall. Analysts believe that the precious metal would move further south next month.

Silver in Mumbai's Zaveri Bazar slipped by 5.5 per cent on Wednesday to Rs 16,860 a kg, a decline of Rs 215 from its peak level of Rs 18,060 a kg three weeks ago.

On the MCX, the silver contract for September delivery ended slightly lower at 16,325 a kg from the previous day's close of Rs 16,338 a kg. The December contract, too, declined marginally at Rs 16,737 a kg compared with Rs 16,748 a kg the previous day.

"Silver is mini platinum now and is hence being preferred by the white metal consumers. But the jewellery demand alone cannot provide support to the price level," said an analyst.

A huge spurt in silver prices in the recent past had brought down the gold-silver price ratio to 49. With the current fall, the ratio has moved up to 54 now from 62.5 earlier.

Silver could see a good support level at Rs 15,500 a kg, said Suresh Hundia of Hundia Exports, the largest silver importer in the country.

The country is currently seeing a huge demand for silver from the jewellery sector. Jewellery consists of 25 to 30 per cent of the total annual silver consumption at 22,000 tonnes, while about another 60 per cent goes for industrial use.

Silver today advanced for the first time in three days in early London trade by 1.5 cents to $11.78 an ounce in line with gold. In New York, however, the metal fell 1 cent to $11.75 an ounce in late Tuesday trade following a worse-than-expected consumer confidence report in the US, fuelling concern that investors may sell the metal to cover losses and reduce risks.

Fear still persists that the credit markets debacle will erode the world economic growth, extending a slide that began last month. Experts believe that softening in commodity prices and weakness in the equity markets has led to risk aversion, which is working against gold, silver and other metals. The volatility in the currency markets is also causing a concern for silver traders.