WHILE the white metal does not glitter as much as the yellow metal, silver is rapidly emerging as a major investment opportunity in India, with prices heading northwards.
Silver’s track record in 2012 has also been impressive, providing returns of nearly 13.5 per cent during the year, as against a little over 13 per cent for gold.
Demand for silver globally, but especially in India and China, is expected to soar in 2013 through to 2015. According to the Silver Institute, which commissioned Thomson Reuters GFMS to do a study on the prospects for the white metal, industrial demand for silver will recover in 2013 and reach new highs the following two years.
During 2012, industrial demand for silver fell by six per cent to 454.4 Moz (million ounces); in the current year, it is expected to rise to 484 Moz, reaching 511.6 Moz in 2014 and peaking at 665.9 million Moz in 2015.
Silver is consumed by several industrial sectors including electrical and electronics, automobiles and photography. According to the report, “the most rapid growth in these sectors is set to come from emerging markets such as India and China, where rapid advances in living standards mean such products have become increasingly more affordable as well as desirable.”
Referring to demand in India, the report notes that industrial demand in the country is price sensitive. “Although we expect to see a record total in 2014, the sluggish economic performance, combined with elevated rupee silver prices, explain why the 2013 forecast total is only modestly higher compared with the previous peak achieved during the late 2000s,” it says.
More than two-thirds of global silver production is used in the industrial sector, while jewellery accounts for 28 per cent. The white metal is also used for other purposes including coins and metals, jewellery and silverware. However, the share of industries such as electrical, electronics and automobiles has soared in recent years.
Analysts in India also expect silver to outperform other investment tools including gold. A report by Religare research, for instance, projects that silver could give returns of nearly 35 per cent in 2013, thanks to an expected surge in demand.
Silver prices, which were hovering around Rs16,500 a kg in 2008, gained by more than 350 per cent over the next three years, topping Rs75,000. However, it plunged to a little over Rs50,000 a kg at the beginning of 2012, and closed the year at about Rs60,000. Analysts expect the price to top Rs65,000 soon because of the growing demand. Some even expect silver to quote between Rs75,000 and Rs80,000 later this year. Thomson Reuters GFMS, the international precious metals consultancy, in its Silver market review, estimates that increased demand for the white metal could see prices topping $50 an ounce by the end of the year.
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WHILE the dramatic rise in the price of gold has grabbed attention in recent years, the fact remains that silver has outshined the yellow metal. Of course, silver prices were volatile in 2012, touching $37 in February, but dipping below $30 over the following three months. Currently quoting around $30 levels, the price is expected to head northwards on the back of an expected increase in industrial demand.
India is one of the leading consumers of silver, accounting for 12.6 per cent of the global demand of 1,040 Moz in 2011. Consequently, the global price of the white metal is also dependent on demand in the country, as India imports the bulk of its silver. The continued growth of the automobile and telecommunications sector (silver is also used in cell phones) in India will ensure that its demand for silver will continue to expand in 2013.
India’s silver imports added up to 2,800 tonnes in 2010, but jumped to 4,800 tonnes a year later. In 2012, the country’s imports are expected to touch 5,000 tonnes.
The sharp spurt in the price of gold has also seen many Indian investors and consumers shift to silver. Many investors are putting their money in silver coins and bullion bars, hoping for a sharp appreciation in their investments.
Consumers are also increasingly buying silver jewellery, since gold prices have become prohibitive. Silver jewellery is trendy, fashionable and safe; in cities where criminals snatch gold chains and jewellery from women using public transport or walking on the roads, silver is a safer bet for many.
Jewellers are also fashioning a lot of products using silver. India’s silver jewellery exports shot up by nearly 45 per cent in 2011-12, as against a 30 per cent rise in gold jewellery exports. The Gems and Jewellery Export Promotion Council (GJEPC) expects a 35 per cent growth in silver jewellery exports in the fiscal 2013 (which ends on March 31).
Consumers in Europe and the US are also buying Indian silver jewellery; many silver products are available for around $100 and are seen as affordable. In the last financial year, India’s white metal jewellery exports added up to Rs36.81 billion, as against Rs25.67 billion in fiscal 2011.
Of course, India’s overall gems and jewellery exports has declined sharply this year because of the continuing economic woes in Europe and the US. According to the GJEPC, gems and jewellery exports fell by 3.7 per cent in November 2012 (over the November 2011 figures), after slipping by 20 per cent in October.
“There is some improvement in demand from the US market, but the European market is still weak which is hitting our exports,” said a GJEPC spokesperson. In November, gold jewellery exports fell by 10 per cent.
Gems and jewellery constitute an important component of India’s export basket, accounting for 17 per cent of its total exports. During 2011-12, gems and jewellery exports fetched the country $43 billion in revenues. But during the first eight months of the current fiscal (April to November) exports fell by 12 per cent to $25.4 billion.
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EARLIER this month, the Central Board of Excise and Customers reduced the tariff value on import of gold and silver. The tariff value is the base price – set by the board – on which customs duty is determined.
The tariff value for silver was cut to $979 a kg from $1,062, while for gold it was reduced to $539 for 10 gm from $550 earlier.
The government imposes an import duty of four per cent on gold and six per cent on silver.
The Reserve Bank of India, the country’s central bank, has been worried about the sharp surge in imports of gold, which along with crude oil has contributed to a huge increase in India’s current account deficit (CAD). The CAD for the July-September quarter amounted to 5.4 per cent of the GDP.
Last fiscal, India imported about $60 billion worth of gold, a 50 per cent jump over the previous year’s figures. (In 2008-09, gold imports amounted to just around $20 billion). In a bid to curb gold imports, the government raised the tariff on gold imports to four per cent from two per cent last March. Traders expect the government to hike the import duty on gold to about six per cent.
The government’s moves to curb gold imports by doubling tariff in March 2012 has had a dramatic impact; according to the World Gold Council, imports fell by a sharp 56 per cent in the second-quarter. But demand picked up during the festive season and the council expected gold imports of around 800 tonnes in 2012, down from 969 tonnes in 2011.