Good option, but few avenues

When asked to choose between gold and silver, most investors would immediately opt for gold. It is primarily because they feel gold can be easily purchased and sold. But, silver is not a bad option either.

If one looks at the price movement of these two metals, it has not been too different. In the last five years, silver prices have almost trebled, whereas gold prices have risen slightly more than that. Returns, as a result, are not too different, especially in the last one year.

Over a five-year period, the price of silver has risen almost 175 per cent (from Rs 10,655 per kg to Rs 29,280). The price of gold (Rs per 10 gm) has risen from Rs 5,970 to Rs 18,570 – up 211 per cent.

In the last one year, silver has outperformed gold. While gold has returned 27.06 per cent, silver gave 31.48 per cent.

So, is there a case for investing in silver, especially now when there is a trading platform in commodity exchanges? Most experts feel so. Amar Singh, head, commodities research, Angel Broking, said, “Silver can be a very good investment avenue. Silver exchange-traded funds (ETFs), if launched, will help get retail interest.”

But, it comes with a caveat. There is a serious problem with storage. For instance, if Rs 1 lakh is invested in gold, you can purchase slightly more than 50 gm (assuming gold at Rs 18,000 per 10 gm).

With the same investment, around 3.3 kg of silver can be purchased. Importantly, earlier one could buy only one-kg bars, but HDFC Bank recently started selling silver bars of 50 gm as well.

But, with the opening of the commodities market, things have started improving. Subodh Gupta, commodities analyst, Anand Rathi Securities, said, “The options for investment in silver are future contracts or purchase of silver bars.”

STOCK TAKING

POSITIVES

• Demand from other sources like industry
• Price appreciation in line with gold

NEGATIVES

• Lacks liquidity, in the absence of ETFs 
• Storage of physical form/bar is cumbersome

While silver futures are a more liquid option, there are mini-contracts (5 kg) valid for one to three months. So, one will need to keep rolling over the contract. Bigger contracts (30 kg) are significantly expensive, and valid for one to six months. Clearly, only high net worth individuals will be able to participate in bigger contracts.

Also, one-kg bars can be bought and sold. “But, silver bars need to be checked for their authenticity. The bar should be hallmarked to ensure its purity,” said Gupta. Of course, one could look at metal-based funds like Birla Precious Metals Fund that invest in equities of mining companies.

Most financial planners rue lack of options for investment in silver. While exposure to commodities is preferred – to the tune of 3 to 10 per cent – gold is preferred over silver. “There is no easy way to invest in silver currently. And, physical silver is cumbersome,” said Kartik Jhaveri, director, Transcend Consulting.

The good part about silver — it has many uses. Many industries, such as electronics and chemicals, use the metal. If industrial demand is expected to slow down, the silver rate may dip too, and vice versa. This, in a way, helps silver decline at a slower rate than gold. Going forward, analysts feel good times are ahead for the metal if the industrial demand stays robust.