Silver surges 3% to trade at Rs 50,000 a kg, its highest in over six years

Investors booked white precious metal as an alternative to gold amid expectation of an spurt in demand with gradual opening up of economy from an eight-week nationwide lockdown

The price of silver jumped by 3.33 per cent in Mumbai's spot Zaveri Bazaar on Saturday to hit the highest in six-and-a-half years as investors booked the white precious metal as an alternative to gold amid expectation of an spurt in its demand with the gradual opening up of the economy from the eight-week nationwide lockdown. 

In the spot Zaveri Bazaar, silver added Rs 1,615 to trade at Rs 50,050 a kg (without GST) on Saturday from Rs 48,435 a day earlier. This price level in rupee value was not seen after October 2013. Standard gold declined marginally to trade at Rs 46,515 per 10 grams on Saturday from Rs 46,710 on Friday.

While trading activity in Zaveri Bazaar remained virtually closed due to the nationwide lockdown, jewellers awaited the state government’s approval to allow opening up of stores to start manufacturing and selling silver ornaments and artifacts.

With factors supporting the uptick in gold price starting to wane, silver has suddenly become a preferred choice for investors. Globally, the gold-silver ratio hit a historical high of 117 last week. Silver offers a good opportunity to earn high returns. With gold stagnating at $1,700-1,750 an oz, silver prices moved up to trade at $17.84 a oz. A sharp increase in silver prices brought gold-silver ratio to 93. 

“Factors supporting the uptrend in gold have now been discounted. Interest rate by the US Federal Reserve, global stimulus, US-China trade war, global economic uncertainty etc have already been factored in. Global economies are now gradually opening up. So, demand of silver for industrial and ornamental use is expected to revive. With gold prices having already overheated, silver is still trading cheap and is expected to hit Rs 54,000-55,000 a kg in the near term,” said Ajay Kedia, managing director, Kedia Commodity.

He believes a further rise in silver may take the gold-silver ratio at 86 and see silver outperforming gold. “Such an opportunity comes once in several years,” said Kedia.

With almost two-thirds of global production foing towards industrial use, silver is a diversified investment asset. Investors park their fund here only when they envisage definite returns.

“Silver remained a laggard in the recent bullion price rally. The metal normally moves in tandem with gold. But, gold prices have jumped nearly 35 per cent over the past one year, while silver remained resilient perhaps because of weak industrial activity and subdued demand. But, now silver could move up faster than any other asset class,” said Rahul Mehta, managing director, Silver Emporium, a Zaveri Bazaar-based artifacts manufacturer and exporter. In rupee terms, the metal has offered 7 per cent returns in calender 2020 so far. In dollar, silver is quoted at the highest in three months. 

Since the nationwide lockdown started on March 25 to prevent spread of coronavirus (Covid-19), all business activity including manufacturing, distribution and retail came to standstill. Now, despite a continuous increase in the number of Covid-19 infections, the government is planning to open business activity in a phased manner to kick-start the economy.

“Silver has missed the last bullion rally. While gold also holds ground for further price rise, silver offers more potential than any other asset class including gold, real estate of any financial instruments,” said Kumar Jain, a bullion dealer and jewellery retailer at Zaveri Bazaar.

Seasonality factor also comes into play in support of silver prices. With the monsoon season is set to kick in early this year with forecast of normal rainfalls, silver is set to see huge investment from all classes of investors including retail and institutions.