Silver falls 1.4% to hit nearly three-week low, gold follows move

In spot trade here, silver fell by Rs 500 to close at Rs 34,500 on Thursday, level last seen on Aug 8

Silver fell 1.4 per cent to hit nearly three-week low in the popular Zaveri Bazaar here on Thursday, following weak global demand trend.

In the spot trade here, silver fell Rs 500 to close at Rs 34,500 on Thursday, the level last seen on August 8. In London, however, silver was trading flat to quote at $14.20.

“There has been weak silver demand from the industrial sector for over the last three–four years. But, the recent step by the Chinese government to strengthen its economy through pumping of fresh money into the system followed by yuan devaluation has created uncertainty for recovery in industrial production. Consequently, silver demand from the industrial sector is expected to remain muted,” said Ajay Kedia, managing director of Kedia Commodity.

Silver follows base metals. Therefore, the fall in base metals has direct co-relation with silver being nearly 66 per cent of global production finds application in various industries.

Most importantly, the US Fed’s latest statement of raising interest rate in the first quarter of calendar 2016, has also raised doubts on the recovery on the industrial sector. So, overall global silver consumption for industrial use is likely to remain lower, which pushes its price down.

“Also, the gold-silver ratio, the barometer for the future bullion price movement, indicates gold price to remain firm going forward. Gold will outperform silver mainly because of weak global economic sentiment and volatility in equity markets,” said an analyst.

Gold-silver ratio currently stands at nearly 80, the highest since economic downturn in 2008. Gold fell by 0.86% or Rs 230 to close on Thursday at Rs 26,470 per 10gms here.

Meanwhile, base metals fell sharply to hit multi year low on the benchmark London Metal Exchange (LME) on subdued demand from the world's largest consumer, China. Experts are eying a recovery in Chinese demand on reversal in base metals prices.

"While gold will continue to see some uptrend, silver would remain muted," said Kedia.