A golden lining seen in silver prices

The white metal gave double the return in 2009 than gold, but is still away from its peak.

While all eyes are on the rising gold prices as the falling US dollar has led investors to shift focus to the yellow metal, it has also helped silver prices to strengthen. While gold is trading at life-time high, silver is still below its all-time high level seen in May 2008. It may flirt with its all-time high price of $20.82 per ounce in coming months. Silver has industrial use and has fallen much sharply after the last year’s of the global financial market following recession fears. The silver stock under exchange-traded funds has already reached record high of 9,116 tonnes.

During 2009 so far, silver has outshined gold. While gold prices rose 30.26 per cent, silver has outpaced it and risen 62.5 per cent.

According to Gold Field Mineral Services (GFMS), a leading London-based bullion research firm, the current rally in gold has also helped silver, and in coming weeks, silver prices may rise further and cross the $20 per ounce-mark.

“In the Mumbai market, silver is trading around Rs 29,000 a kg and is expected to cross Rs 31,000 following the momentum in gold prices,” said Atul Shah, head (commodities), Emkay Commodities.

Central banks across the world are buying gold and this has provided a trigger for gold. In early October, the Reserve Bank of India announced the purchase of 200 tonnes of gold from the International Monetary Fund (IMF) at an average price of $1,045 per ounce. Early this year, China and Russia had announced about their plan to augment gold reserves. On Thursday, according to Barclays’ Commodities report, Mauritius bought two tonnes of gold from IMF. Market experts believe that the price at which RBI bought gold will act as a support level for other central banks.

In its Interim Silver Market Review, GFMS said, “Silver prices are expected to cross the $20 level in the short term on continued surge in investment. A recovery in fabrication demand should support prices in 2010 as well even as investors’ interest eventually moderates.”

Silver has benefited from gold’s strength, US dollar’s weakness, some investors’ rising concern over higher inflation in future and general growth in investors’ interest in commodities in a very low interest rate environment.

Overall, the January-October period saw 3,110 tonnes rise in ETF holdings coupled with an increase of 5,306 tonnes in the ‘investor’ net long position in the Comex futures. According to Barclays Commodities, the total holding in silver ETFs has reached a record high of 9,116 tonnes.

GFMS sees 2009 to end with an 11 per cent fall in silver demand for fabrication and 20 per cent fall in overall industrial demand. But coin-minting has risen strongly this year, with a full year gain forecast for 2009 at 19 per cent.