Silver falls 7.1% this week on weak demand

Silver has seen a drop of 7.1 per cent since last Saturday due to weak demand, casing investors to stay away from trading in it.

On the domestic spot market, it was Rs 58,000 a kg last Saturday and was Rs 53,875 a kg today at Zaveri Bazar here. Today’s prices were 4.3 per cent less than yesterday. There were reports of weakening economic recovery and metal prices fell. Silver closely follows the direction of base metals.

The outlook for base metals is negative, as Japan will take time to recover from its earthquake and China is expected to raise interest rates in the next 15 days.

The high margin on silver has also caused investors to stay away. Currently, the margin on silver on the MCX is 10.5 per cent, compared to four to five per cent three months earlier. The bull run in silver started in the early part of 2011. Indian players were said to be short, along with other major traders in the international market, and covering their short positions led to a spurt in prices. Now many traders, here and abroad, are said to be holding long positions and have been trapped as the prices have started falling.

Physical demand for silver is also weak. No festive or wedding demand for the metal is expected in June, July and August.

Globally, iShares, the silver exchange traded fund, saw outflows of around four tonnes in the first two days of June. According to analysts at Barclays Commodities, “Silver’s physical market fundamentals are weaker than any other precious metal. Booming retail investment demand will need to return to push prices higher.”

In India, “silver is expected to see a downside of Rs 50,000 a kg on domestic markets and $30 per ounce on the international market by the end of the next week,” said Dharmesh Bhatia, associate vice president, Kotak Commodity Services.

Large traders share the view that correction in silver may continue for some time. “The short-term outlook is weak and it may see a correction till $32 per ounce by the end of this month, while on the domestic markets, it is expected to fall till Rs 45,000-48,000 per kg. In the month of June, commodities generally see a correction,” said Prithviraj Kothari, president of the Bombay Bullion Association.

The gold/silver ratio has also moved up to 42.99 from 39.70 on June 1.