Silver prices fall more than 40% from a high of Rs 4 lakh/kg to Rs 2.35 lakh, but buyers still stay away; A bigger problem is yet to come as the 2,000 tonnes ordered by Indian distributors risk piling up.
A huge drop in silver prices should have sparked a revival in demand, but investors seem to stay away. And this has raised new concerns ahead of the holiday season.Silver refiners and bullion dealers are seeing their inventories rise as new investment demand for the metal weakens.
The development comes even as silver prices have fallen more than 40% from their January peak of over Rs 4 lakh per kg.
Uncertainty over a possible breakthrough in the US-Iran war and concerns about weakening industrial demand have added to the pressure.In the Mumbai spot market, silver was trading at Rs 2.35 lakh per kg earlier this week.
weakens
Traders and analysts have said that the slowdown in investment demand can be seen in exchange-traded funds (ETFs), bars and silver coins. Investors who bought the metal when prices were significantly higher are now suffering substantial losses, making them hesitant to make new purchases despite the sharp price correction.Read also | A couple sold gold for Rs 20 lakh to buy a house, another family got Rs 80 lakh to get a degree and a business in the US: How Indians are unlocking the value of idle gold kept in their lockers“Investment demand for silver ETFs, bars and coins has decreased.
Internationally, prices are unlikely to immediately rise above $100 per troy ounce unless the US-Iran war comes to an end. Silver prices are undervalued,” Chirag Sheth, head of global business at Public Gold Bullion (SG) Pte, told ET. “The ongoing war between the US and Iran has impacted the solar industry, the semiconductor industry and the electric vehicle industry where silver is used.
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Massive silver accumulation
Weak demand is also creating an inventory problem for domestic players. Indian bullion traders and refiners have reportedly placed orders for around 2,000 tonnes of silver, which is currently in transit. The additional supplies have raised concerns about further stockpiling. India imports around 7,000 tonnes of silver every year.“Without the arrival of new investors and no immediate signs of rising prices, refiners and bullion traders are facing a problem both internationally and in domestic markets,” said James Jose, president of the Precious Metals Refiners Forum.
The spectacular fall of silver
Silver prices have fallen steadily over the past seven months, following an extraordinary rally that saw the metal rise more than 300% year over year. In January, silver crossed Rs 4 lakh per kg for the first time on the Multi Commodity Exchange.“The market is still digesting the fallout from the speculation-driven frenzy, and this may be prompting investors to stay away after many of them suffered significant losses,” Carsten Menke, director of Next Generation Research, Julius Baer told ET.The outlook for industrial demand increases pressure and consumption is expected to weaken. “A shift toward cheaper alternatives such as aluminum and copper has begun, and the growth prospects for Chinese solar module manufacturers, which are the largest industrial users of silver, are no longer as strong,” Menke said.The current war between the United States and Iran has added to the negative sentiment around silver. If the conflict continues for a prolonged period, investors may remain cautious.
At the same time, expectations of weaker industrial consumption could hinder a quick rebound in silver prices.Despite the sharp drop, some long-term investors are once again looking to silver as a way to diversify their portfolios.“The market has been fully aware of the sharp decline in silver prices in recent days. Some investors have trimmed their allocations, while others have prepared for fresh acquisitions depending on their views and objectives,” said Nilanjan Dey, partner at Wishlist Capital.Dey said investors who have a time horizon of five years or longer might consider purchasing silver ETFs on a staggered basis rather than investing a large amount at once. Monthly or biweekly investments could help spread the purchase price and reduce the impact of short-term price movements.For first-time investors looking to add precious metals to their portfolios as a diversification from stocks, ETFs can provide exposure without the need to hold or manage physical silver. However, Dey cautioned that investors with a shorter investment horizon should not assume that the recent decline automatically makes silver an attractive buying opportunity.(Disclaimer: Recommendations and views on the stock market, or any other asset class or personal finance management tips provided by experts and analysts are their own. These views do not represent the views of The Times of India.)
