Silver volatile, but may pick up steam

Silver prices have turned volatile since April due to the metal’s conflicting consumption character. In the last couple of months, silver prices have moved wildly. Prices may rise for some time before declining.

A month ago, on May 12, silver touched a high of $19.54 an ounce, a level not seen since April. But, after gold fell $40 (3.5 per cent) from its peak, silver lost nearly $2, or almost 10 per cent, although it has recovered since then and is currently trading at $18.40, which is 6 per cent lower than its peak seen a month ago. Silver’s all-time high in the international market was $20.81, seen in May 2008, and Monday’s prices are still 17.4 per cent away from the high.

On Monday, in Mumbai, gold declined Rs 125 per 10 gm to close at Rs 18,615 while silver was down by Rs 5 from Saturday and closed at Rs 29,665 a kg.

According to bullion analyst Bargav Vaidya, “Silver is expected to trade in the range of $20-$17. It has some upside left.” In the Mumbai market, the demand has fallen significantly and imports have reduced to half due to volatility and high prices. He said in the second half of 2009, nearly 1,400 tonnes of silver was imported, which has come down to 700 tonnes till date.

Silver prices are more volatile because of its conflicting nature of demand. Half of silver’s consumption is for non-investment or industrial purpose. Hence, silver was falling whenever there was concern on growth, while gold gained on such concerns.

“We expect silver will again cross $20 by September and in India prices may be around Rs 31,500 a kg as the ratio of silver price to gold is around 66 and can go up to 70, though the ratio may range in 70-55 during the year,” an analyst with India Infoline Commodities said. The silver to gold ratio is how much ounce silver you can buy at the price of one ounce of gold.

A silver report from India Infoline commodities said, “In the present scenario, once the deflationary sentiment fades and an investing community starts to react to inflationary or hyper inflationary scenarios, silver should be the commodity to gain more as it has the characteristics of both precious metal and industrial metal. Gold’s outperformance to silver is a signal about economic contraction or uncertainties. The recent spike in gold-silver ratio is a witness to the one of the biggest recessions the world is witnessing currently.”